This final rule amends an existing provision in the regulations for the Technical Assistance for Specialty Crops Program (TASC). Section 3205 of the Agricultural Act of 2014 enacted on February 7, 2014, amended the existing TASC statute by striking “related barriers to trade” and inserting “technical barriers to trade”. This rule makes the corresponding change to the TASC regulations.

This rule is issued in conformance with Executive Order 12866. It has been determined to be not significant for the purposes of Executive Order 12866 and has not been reviewed by the Office of Management and Budget (OMB). A cost-benefit assessment of this rule was not completed.

Executive Order 12988

This rule has been reviewed in accordance with Executive Order 12988. This rule does not preempt State or local laws, regulations, or policies unless they present an irreconcilable conflict with this rule. This rule would not be retroactive.

Executive Order 12372

This program is not subject to Executive Order 12372, which requires intergovernmental consultation with State and local officials. See 7 CFR part 3015, subpart V, and the related notice published at 48 FR 29115 (June 24, 1983).

Executive Order 13175

This rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000) that will preempt Tribal law.

Executive Order 13132

This rule does not have any substantial direct effect on States, on the relationship between the Federal government and the States, or on the distribution of power and responsibilities among the various levels of government, nor does this rule impose substantial direct compliance costs on State and local governments. Therefore, consultation with the States was not required.

Regulatory Flexibility Act

The Regulatory Flexibility Act does not apply to this rule because CCC is not required by 5 U.S.C. 553 or any other law to publish a notice of proposed rulemaking with respect to the subject matter of this rule.

Environmental Assessment

CCC has determined that this rule does not constitute a major State or Federal action that would significantly affect the human or natural environment, consistent with the regulations implementing the National Environmental Policy Act (NEPA), 40 CFR parts 1500-1508. Therefore, no environmental assessment or environmental impact statement will be prepared.

Unfunded Mandates

Although CCC is publishing this as a final rule, Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) does not apply to this rule because this rule contains no unfunded mandates as defined in section 202 of UMRA. Nor does this rule potentially affect small governments or contain significant Federal intergovernmental mandates.

Paperwork Reduction Act of 1995

In accordance with the Paperwork Reduction Act of 1995, CCC has previously received approval from OMB with respect to the information collection required to support this program. The information collection is described below:

Title: Technical Assistance for Specialty Crops.

OMB Control Number: 0551-0038.

E-Government Act Compliance

CCC is committed to complying with the E-Government Act to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services and for other purposes. The forms, regulations, and other information collection activities required to be utilized by a person subject to this rule are available athttp://www.fas.usda.gov.

Background

This final rule amends the regulations at 7 CFR part 1487 applicable to the TASC program. The Farm Security and Rural Investment Act of 2002, which was reauthorized by the Food, Conservation, and Energy Act of 2008, directed CCC to establish a program to provide mandatory funding to assist U.S. organizations to undertake projects that address sanitary, phytosanitary, and related barriers that prohibit or threaten the export of U.S. specialty crops. The Foreign Agricultural Service (FAS), which administers the TASC program on behalf of CCC, provides grant funds as direct assistance to U.S. organizations.

In addressing sanitary and phytosanitary trade barriers, FAS has provided TASC funding for projects such as pre-clearance programs, export protocol and work support plans, pest and disease research, the development of pest lists, field surveys, seminars and other plant health related projects. Until the passage of the Agricultural Act of 2014 (Pub. L. 113-79), certain export barriers such as quality or packaging issues and environmental sustainability labeling requirements could not be addressed under the TASC program because, although legitimate export barriers, they did not appear to meet the requirement of being related to a sanitary or phytosanitary barrier to trade. Industry groups requested Congress amend the law to broaden the types of trade barriers eligible under TASC. Section 3205 of the Agriculture Act of 2014 amended the TASC statute by striking “related barriers to trade” and inserting “technical barriers to trade” in 7 U.S.C. 5680(b).

Notice and Comment

In general, the Administrative Procedure Act (5 U.S.C. 551 et.al) requires that a notice of proposed rulemaking be published in the Federal Register and interested persons be given an opportunity to participate in the rulemaking through submission of written data, views, or arguments with or without opportunity for oral presentation, except when the rule involves a matter relating to public property, loans, grants, benefits, or contracts. Because this rule involves grants and is a minor administrative change with no discretionary interpretation of law possible, CCC is publishing this rule without opportunity for public comment. The change will allow TASC funding of projects that address technical barriers to trade that are not related to any sanitary or phytosanitary barrier. In the past, the TASC program has been undersubscribed, while significant, but ineligible, trade barriers for specialty crops were unable to be addressed through the program. The specialty crops industry will now be able to use the program to fund a broader range of projects that all have the same underlying goal of increasing U.S. specialty crop exports. This change will increase the number of proposals that qualify for the program.

List of Subjects in 7 CFR Part 1487

Agricultural commodities, Exports, Specialty crops.

For the reasons set out in the preamble, 7 CFR part 1487 is amended as follows:

PART 1487—TECHNICAL ASSISTANCE FOR SPECIALTY CROPS1. The authority citation for part 1487 continues to read as follows:Authority:

Sec. 3205 of Pub. L. 107-171.

2. Revise § 1487.2 to read as follows:§ 1487.2What is the TASC program?

Under the TASC program, CCC, an agency and instrumentality of the United States within the Department of Agriculture, provides funds to eligible organizations, on a grant basis, to implement activities that are intended to address a sanitary, phytosanitary, or technical barrier that prohibits or threatens the export of U.S. specialty crops that are currently available on a commercial basis. The TASC program is intended to benefit the represented industry rather than a specific company or brand. This program is administered by FAS.

The Commission is amending the Hart-Scott-Rodino (“HSR”) Premerger Notification Rules (the “Rules”), and the Premerger Notification and Report Form and associated Instructions (“Form and Instructions”) to reflect the new address of the Commission's Premerger Notification Office (the “PNO”).

Section 7A of the Clayton Act (the “Act”) requires the parties to certain mergers or acquisitions to file with the Federal Trade Commission (the “Commission” or “FTC”) and the Antitrust Division of the Department of Justice (the “Assistant Attorney General” or the “Antitrust Division”) (together the “Antitrust Agencies” or “Agencies”) to allow the agencies to conduct their initial review of a proposed transaction's competitive impact and requires the parties to wait a specified period of time before consummating such transactions. The reporting requirement and the waiting period that it triggers are intended to enable the Antitrust Agencies to determine whether a proposed merger or acquisition may violate the antitrust laws if consummated and, when appropriate, to seek a preliminary injunction in federal court to prevent consummation, pursuant to Section 7 of the Act.

Section 7A(d)(1) of the Act, 15 U.S.C. 18a(d)(1), directs the Commission, with the concurrence of the Assistant Attorney General, in accordance with the Administrative Procedure Act, 5 U.S.C. 553, to require that premerger notification be in such form and contain such information and documentary material as may be necessary and appropriate to determine whether the proposed transaction may, if consummated, violate the antitrust laws. Section 7A(d)(2) of the Act, 15 U.S.C. 18a(d)(2), grants the Commission, with the concurrence of the Assistant Attorney General, in accordance with 5 U.S.C. 553, the authority to define the terms used in the Act and prescribe such other rules as may be necessary and appropriate to carry out the purposes of § 7A.

Pursuant to that authority, the Commission, with the concurrence of the Assistant Attorney General, developed the Rules, codified in 16 CFR Parts 801, 802 and 803, and the Form and its associated Instructions, codified at Part 803—Appendix, to govern the form of premerger notifications to be provided by merging parties. The Form is designed to provide the Commission and the Assistant Attorney General with the information and documentary material necessary for an initial evaluation of the potential anticompetitive impact of significant mergers, acquisitions and certain similar transactions.

Changes to the Form, Instructions and Rules

The Commission is amending Section 803.10 of the Rules, as well as the accompanying Form and Instructions, to incorporate the new address of the PNO. Accordingly, the Commission is updating the address of the PNO in the General Instructions (Information and Filing Sections), in the Disclosure Notice section of the Form, and in Section 803.10(c)(1)(i) of the Commission's Rules, to read as follows: Premerger Notification Office, Federal Trade Commission, Room 5301, 400 7th Street SW., Washington, DC 20024.

Administrative Procedure Act

The Commission finds good cause to adopt these changes without prior public comment. Under the APA, notice and comment are not required “when the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefore in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.” 5 U.S.C. 553(b)(3)(B).

The Commission is updating the address for submission of premerger notification forms in the Rule and the Appendix to Part 803 to reflect the PNO's new address. It does not involve any substantive changes in the Rule's requirements for entities subject to the Rule. Accordingly, the Commission finds that public comment is unnecessary.

In addition, under the APA, a substantive final rule is required to take effect at least 30 days after publication in the Federal Register unless an agency finds good cause that the rule should become effective sooner. 5 U.S.C. 553(d). However, this is purely a clerical change and is not a substantive rule change. Moreover, prompt adoption of this amendment is necessary to alert the public of the updated address for filing of premerger notification forms. Therefore, the Commission finds good cause to dispense with a delayed effective date.

For these reasons, the Commission finds that there is good cause for adopting this final rule as effective on April 28, 2014, without prior public comment.

Regulatory Flexibility Act

Under the Regulatory Flexibility Act (“RFA”), 5 U.S.C. 601-612, an agency must prepare a regulatory flexibility analysis for all proposed and final rules that describes the impact of the rule on small entities, unless the head of the agency certifies that the rule will not have a “significant economic impact on a substantial number of small entities.” 5 U.S.C. 605(b). However, the RFA applies only to rules for which an agency publishes a general notice of proposed rulemaking. 5 U.S.C. 603(a), 604(a). As discussed above, the Commission has determined for good cause that the APA does not require notice and public comment on this rule. Accordingly, the RFA does not apply to this final rule.

Paperwork Reduction Act

These changes do not contain any record maintenance, reporting or disclosure requirements that would constitute agency “collections of information” that would have to be submitted for clearance and approval by the Office of Management and Budget under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501-3518.

List of Subjects in 16 CFR Part 803

Antitrust.

For the reasons stated in the preamble, the Federal Trade Commission amends 16 CFR part 803 as set forth below:

PART 803—TRANSMITTAL RULES1. The authority citation for part 803 continues to read as follows:Authority:

(c)(1) Date of receipt and means of delivery. For purposes of this section, these procedures shall apply.

(i) The date of receipt shall be the date on which delivery is effected to the designated offices (Premerger Notification Office, Federal Trade Commission, Room 5301, 400 7th Street SW., Washington, DC 20024 and Director of Civil Enforcement, Office of Operations, Antitrust Division, Department of Justice, 950 Pennsylvania Avenue NW., Room #3335, Washington, DC 20530) during normal business hours. Delivery should be effected directly to the designated offices, either by hand or by certified or registered mail. In the event one or both of the delivery sites are unavailable, the FTC and DOJ may designate alternate sites for delivery of the filing. Notification of the alternate delivery sites will normally be made through a press release and, if possible, on the http://www.ftc.gov and https://www.hsr.gov Web sites.

3. In the Appendix to part 803, revise Page 10 of the Notification and Report Form for Certain Mergers and Acquisitions, and pages I and II of the Instructions, to read as follows:Appendix to Part 803—Notification and Report Form for Certain Mergers and AcquisitionsBILLING CODE: 6750-01-PER06MY14.013ER06MY14.014ER06MY14.015

This final rule amends PBGC's regulation on Benefits Payable in Terminated Single-Employer Plans, which sets forth rules on PBGC's guarantee of pension plan benefits, including rules on the phase-in of the guarantee. The amendments implement the Pension Protection Act of 2006 provision that the phase-in period for the guarantee of benefits that are contingent upon the occurrence of an “unpredictable contingent event,” such as a plant shutdown, starts no earlier than the date of the shutdown or other unpredictable contingent event.

DATES:

Effective June 5, 2014.

FOR FURTHER INFORMATION CONTACT:

Catherine B. Klion, Assistant General Counsel for Regulatory Affairs, Office of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K Street NW., Washington, DC 20005, 202-326-4224 or klion.catherine@pbgc.gov. (TTY/TDD users may call the Federal relay service toll-free at 1-800-877-8339 and ask to be connected to 202-326-4224.)

SUPPLEMENTARY INFORMATION:Executive Summary

This rule is needed to conform PBGC's benefit payment regulation to Pension Protection Act of 2006 changes to the phase-in of PBGC's guarantee of benefits that are contingent upon the occurrence of an “unpredictable contingent event,” such as a plant shutdown.

PBGC's legal authority for this action comes from section 4002(b)(3) of the Employee Retirement Income Security Act of 1974 (ERISA), which authorizes PBGC to issue regulations to carry out the purposes of Title IV of ERISA, and section 4022 of ERISA, which sets forth rules on PBGC's guarantee of benefits in terminated single-employer plans.

This final regulation codifies the Pension Protection Act of 2006 provision that the phase-in period for the guarantee of benefits that are contingent upon the occurrence of an “unpredictable contingent event,” such as a plant shutdown, starts no earlier than the date of the shutdown or other unpredictable contingent event. The regulation incorporates the definition of an unpredictable contingent event benefit under Title II of ERISA and Treasury regulations; provides that the guarantee of an unpredictable contingent event benefit is phased in from the latest of the date the benefit provision is adopted, the date the benefit is effective, or the date the event that makes the benefit payable occurs; and includes eight examples that show how the phase-in rules apply in various situations.

PBGC received one public comment on its 2011 proposed regulation. PBGC has made a change to the final regulation in response to the comment.

Background

The Pension Benefit Guaranty Corporation (PBGC) administers the single-employer pension plan termination insurance program under Title IV of the Employee Retirement Income Security Act of 1974 (ERISA). The program covers certain private-sector, single-employer defined benefit plans, for which premiums are paid to PBGC each year.

Covered plans that are underfunded may terminate either in a distress termination under section 4041(c) of ERISA or in an involuntary termination (one initiated by PBGC) under section 4042 of ERISA. When such a plan terminates, PBGC typically is appointed statutory trustee of the plan, and becomes responsible for paying benefits in accordance with the provisions of Title IV.

Under sections 4022(b)(1) and 4022(b)(7) of ERISA and §§ 4022.24 through .26 of PBGC's regulation on Benefits Payable in Terminated Single-Employer Plans, 29 CFR part 4022, PBGC's guarantee of new pension benefits and benefit increases is “phased in” over a five-year period, which begins on the date the new benefit or benefit increase is adopted or effective, whichever is later.

The Pension Protection Act of 2006, Public Law 109-280 (PPA 2006), amended section 4022 of ERISA by adding a new section 4022(b)(8), which changes the start of the phase-in period for plant shutdown and other “unpredictable contingent event benefits.” Under section 4022(b)(8), the phase-in rules are applied as if a plan amendment creating an unpredictable contingent event benefit (UCEB) was adopted on the date the unpredictable contingent event (UCE) occurred rather than as of the actual adoption date of the amendment, which is almost always earlier. As a result of the change, the guarantee of benefits arising from plant shutdowns and other UCEs that occur within five years of plan termination (or the date the plan sponsor entered bankruptcy, if applicable under PPA 2006, as explained below) generally will be lower than under prior law. This provision, which does not otherwise change the existing phase-in rules, applies to benefits that become payable as a result of a UCE that occurs after July 26, 2005.

Phase-In of PBGC Guarantee

Under section 4022(b)(7) of ERISA, the guarantee of benefits under a new plan or of a new benefit or benefit increase under an amendment to an existing plan (all of which are referred to in PBGC's regulations as “benefit increases”) is “phased in” based on the number of full years the benefit increase is in the plan. The time period that a benefit increase has been provided under a plan is measured from the later of the adoption date of the provision creating the benefit increase or the effective date of the benefit increase. Generally, 20 percent of a benefit increase is guaranteed after one year, 40 percent after two years, etc., with full phase-in of the guarantee after five years. If the amount of the monthly benefit increase is below $100, the annual rate of phase-in is $20 rather than 20 percent.

The phase-in limitation generally serves to protect the insurance program from losses caused by benefit increases that are adopted or made effective shortly before plan termination. This protection is needed because benefit increases can create large unfunded liabilities. An example is a plan amendment that significantly increases credit under the plan benefit formula for service performed prior to the amendment. Such increases generally are funded over time under the ERISA minimum funding rules. Congress determined that an immediate full guarantee would result in an inappropriate loss for PBGC if a plan terminated before an employer significantly funded a benefit increase. Phase-in of the guarantee allows time for some funding of new liabilities before they are fully guaranteed.

Funding of liabilities created by a benefit increase generally starts at the same time as the PBGC guarantee first applies under the phase-in rule. Under ERISA and the Internal Revenue Code (Code), liability created by a benefit increase must be reflected in a plan's required contribution no later than the plan year following adoption of the benefit increase. For example, a benefit increase that is adopted and effective in the 2009 plan year must be reflected in the minimum funding contribution calculations for a plan year not later than the 2010 plan year. Similarly, such a benefit increase would become partially guaranteed during the 2010 plan year.

Over the years, legislative reforms, including those in PPA 2006, have generally shortened the permitted funding period from thirty years to seven years (or less in certain cases). This closer coordination between the permitted funding period and five-year guarantee phase-in period generally enhanced the effectiveness of the phase-in provisions in protecting the PBGC insurance program against losses due to unfunded benefit increases. However, as explained below, before the PPA 2006 changes to the phase-in of UCEBs, this coordination generally failed in the case of UCEBs.

Unpredictable Contingent Event Benefits

UCEBs, described more specifically below, are benefits or benefit increases that become payable solely by reason of the occurrence of a UCE such as a plant shutdown. UCEBs typically provide a full pension, without any reduction for age, starting well before an unreduced pension would otherwise be payable. The events most commonly giving rise to UCEBs are events relating to full or partial plant shutdowns or other reductions in force. UCEBs, which are frequently provided in pension plans in various industries such as the steel and automobile industries, are payable with respect to full or partial plant shutdowns as well as shutdowns of different kinds of facilities, such as administrative offices, warehouses, retail operations, etc. UCEBs are also payable, in some cases, with respect to layoffs and other workforce reductions.1

1 The Technical Explanation of PPA 2006 prepared by the Joint Committee on Taxation Staff specifies that UCEBs include benefits payable with respect to “facility shutdowns or reductions in workforce.” Joint Committee on Taxation, Technical Explanation of H.R. 4, the “Pension Protection Act of 2006,” as passed by the House on July 26, 2006, and as considered by the Senate on August 3, 2006 (JCX-38-06), August 3, 2006, at 90 (hereinafter Technical Explanation of PPA 2006).

A typical shutdown benefit provision in the steel industry—the so-called “70/80 Rule”—generally allows participants who lose their jobs due to the complete or partial closing of a facility or a reduction-in-force and whose age plus service equals 70 (if at least age 55) or 80 (at any age) to begin receiving their full accrued pension immediately, even though they have not reached normal retirement age. Similar UCEBs are common in the automobile industry with respect to shutdowns and layoffs. The purpose of these benefits is to assist participants financially in adjusting to a permanent job loss.

Time Lag Between Start of Guarantee Phase-In and Funding of UCEBs

A UCEB provision typically has been in a plan many years before the occurrence of the event that eventually triggers the benefit, such as a plant shutdown. As a result, before PPA 2006, shutdown benefits, for example, were often fully guaranteed under the phase-in rules when a shutdown occurred. Because the benefit is contingent on the occurrence of an unpredictable event, plan sponsors typically did not make contributions to provide for advance funding of such benefits; funding of such benefits often did not begin until after the UCE had occurred. If, as often happened, plan termination occurred within a few years after a shutdown, the time lag between the start of the phase-in period and the start of funding resulted in an increased loss to the insurance program.

Treatment of UCEBs in OBRA 1987

Congress first explicitly addressed UCEBs in funding reforms contained in the Pension Protection Act of 1987, enacted as part of Public Law 100-203, the Omnibus Budget Reconciliation Act of 1987 (OBRA 1987). The OBRA 1987 rules for deficit reduction contributions required employers to recognize UCEBs on an accelerated basis (generally, within five to seven years), beginning after the triggering event occurred.2 However, the rules did not address the mismatch of the funding and guarantee phase-in periods discussed above. They also did not address the fact that UCEBs are likely to be triggered when the employer is experiencing financial difficulty, which threatens both funding and continuation of the plan. For these reasons, in the years since OBRA 1987, PBGC has assumed more than $1 billion of unfunded benefit liabilities from shutdown and similar benefits.

Congress further addressed UCEBs in PPA 2006. PPA 2006 affected UCEBs in two important ways.

First, PPA 2006 added new ERISA section 206(g) and parallel Code section 436(b) that restrict payment of UCEBs with respect to a UCE if the plan is less than 60 percent funded for the plan year in which the UCE occurs (or would be less than 60 percent funded taking the UCEB into account). Unless the restriction is removed during that plan year as a result of additional contributions to the plan or an actuarial certification meeting certain requirements, the restriction becomes permanent and, under Treas. Reg. § 1.436-1(a)(4)(iii),3 the plan is treated as if it does not provide for those UCEBs.4 Because PBGC guarantees only benefits that are provided under a plan, a UCEB that is treated as not provided under the plan because of this restriction is not guaranteeable by PBGC at all, and the phase-in rules that are the subject of this final regulation do not come into play for such a UCEB. Moreover, under Treas. Reg. § 1.436-1(a)(3)(ii), benefit limitations under ERISA section 206(g) that were in effect immediately before plan termination continue to apply after termination.

3 Treasury Regulations under Code sections 430 and 436 also apply for purposes of the parallel rules in ERISA sections 303 and 206(g).

4 74 FR 53004, 53062 (Oct. 15, 2009). Treas. Reg. § 1.436-1(a)(4)(iii) permits all or any portion of prohibited UCEBs to be restored by a plan amendment that meets the requirements of section 436(c) of the Code and Treas. Reg. § 1.436-1(c) and other applicable requirements. Such an amendment would create a “benefit increase” under § 4022.2 and therefore PBGC's guarantee of UCEBs restored by such an amendment would be phased in from the later of the adoption date of the amendment or the effective date as of which the UCEB is restored, as provided under § 4022.27(c) of the final regulation.

Second, PPA 2006 better aligns the starting dates of the funding and guarantee phase-in of UCEBs. Under PPA 2006, phase-in of the PBGC guarantee does not start until the UCE actually occurs. Specifically, ERISA section 4022(b)(8), added by section 403 of PPA 2006, provides: “If an unpredictable contingent event benefit (as defined in section 206(g)(1)) is payable by reason of the occurrence of any event, this section shall be applied as if a plan amendment had been adopted on the date such event occurred.” The provision applies to UCEs that occur after July 26, 2005. Thus, for purposes of the phase-in limitation, the date a UCE occurs is treated as the adoption date of the plan provision that provides for the related UCEB. This statutory change provides the PBGC insurance program a greater measure of protection than prior law from losses due to unfunded UCEBs—most notably, benefits that become payable by reason of a plant shutdown or similar event such as a permanent layoff.5

5 In addition, Treas. Reg. § 1.430(d)-(1)(f)(6) requires that calculation of the funding target for a single-employer plan take into account, based on information as of the valuation date, the probability that UCEBs will become payable. Under that Treasury regulation, the probability may be assumed to be zero if there is not more than a de minimis likelihood that the UCE will occur.

ERISA section 206(g)(1), as added by section 103(a) of PPA 2006, defines “unpredictable contingent event benefit” as any benefit payable solely by reason of a plant shutdown (or similar event, as determined by the Secretary of the Treasury), or an event other than the attainment of any age, performance of any service, receipt or derivation of any compensation, or occurrence of death or disability.

On October 15, 2009 (at 74 FR 53004), the Department of the Treasury (Treasury) published a final rule on Benefit Restrictions for Underfunded Pension Plans that defines UCEB for purposes of ERISA section 206(g)(1), and thus also for purposes of section 4022(b)(8). Treasury's final regulation clarifies the following points regarding UCEBs:

• UCEBs include only benefits or benefit increases to the extent such benefits or benefit increases would not be payable but for the occurrence of a UCE.

• The reference to “plant shutdown” in the statutory definition of UCEB includes a full or partial shutdown.

Treasury's final regulation also states that a UCEB includes benefits triggered by events similar to plant shutdowns. Treas. Reg. § 1.436-1(j)(9) defines a UCEB at 26 CFR 1.436(j)(9).PBGC Proposed Rule and Public Comment

On March 11, 2011 (at 76 FR 13304), PBGC published a proposed rule to implement section 403 of PPA 2006.6 PBGC received one comment on the proposed rule, from an association of labor organizations.7 The commenter requested that the final rule limit PBGC's discretion to determine the beginning date of the phase-in period for the guarantee of a UCEB and require PBGC to notify participants affected by the phase-in of the date of the UCE. The commenter also expressed concern about the participant-by-participant basis for determining the date on which a UCE occurs in the case of a reduction in force. PBCG's response to the comment is discussed below.

6 With one exception, explained below under the heading “Bankruptcy filing date treated as deemed termination date,” the other provisions of PPA 2006 affecting PBGC's guarantee do not affect phase-in of the guarantee of UCEBs and thus were not addressed in the proposed rule.

7 The comment is posted on PBGC's Web site, www.pbgc.gov.

Overview of Final Regulation

The final regulation incorporates the definition of UCEB under section 206(g)(1)(C) of ERISA and Treas. Reg. § 1.436-1(j)(9). It also provides that the guarantee of a UCEB is phased in from the latest of the date the benefit provision is adopted, the date the benefit is effective, or the date the UCE that makes the benefit payable occurs. The final rule includes eight examples that show how the UCEB phase-in rules apply in the following situations:

• Shutdown that occurs later than the announced shutdown date.

• Sequential permanent layoffs.

• Skeleton shutdown crews.

• Permanent layoff benefit for which the participant qualifies shortly before the sponsor enters bankruptcy.

• Employer declaration during a layoff that return to work is unlikely.

• Shutdown benefit with age requirement that can be met after the shutdown.

• Retroactive UCEB.

• Removal of IRC Section 436 restriction.8

8 The examples are not an exclusive list of UCEs or UCEBs and are not intended to narrow the statutory definition, as further delineated in Treasury Regulations.

The final regulation is nearly the same as the proposed regulation. As explained below, PBGC has made one change in the regulation in response to the public comment. In addition, PBGC has updated the dates in the examples.

Regulatory ChangesUCEBs Covered

As explained above, ERISA section 4022(b)(8), added by section 403 of PPA 2006, changes the rules for phasing in the guarantee of UCEBs in the case of UCEs that occur after July 26, 2005. Section 4022(b)(8) covers shutdown-type benefits, including benefits payable by reason of complete shutdowns of plants, and benefits payable when participants lose their jobs or retire as a result of partial closings or reductions-in-force at all kinds of facilities, in addition to other UCEBs. Accordingly, § 4022.27(a) expressly refers to benefits payable as a result of “plant shutdowns or other unpredictable contingent events . . ., such as partial facility closings and permanent layoffs.” 9

9 As explained in Technical Explanation of PPA 2006, supra note 1, “layoff benefits,” as that term is used in Treas. Reg. § 1.401-1(b)(1)(i), are severance benefits that may not be included in tax-qualified pension plans. In contrast, the benefits covered in this regulation are retirement benefits payable in the event of certain workforce reductions. These retirement benefits—generally subsidized early retirement benefits—may be provided in tax-qualified plans insured by PBGC.

As stated above, a UCEB is defined by section 206(g)(1)(C) of ERISA to include benefits payable solely by reason of (1) a plant shutdown or similar event, or (2) an event other than an event such as attainment of a certain age or performance of service, that would trigger eligibility for a retirement benefit. The final regulation provides that PBGC will determine whether a benefit is a UCEB based on the facts and circumstances; the substance of the benefit, not what it is called, determines whether the benefit would be a UCEB covered by the new phase-in rule. Accordingly, under § 4022.27(b), the guarantee of any benefit that PBGC determines, based on plan provisions and facts and circumstances, is a shutdown benefit or is otherwise a UCEB will be phased in as a UCEB.

The definition of UCEB under § 4022.2 provides that a benefit does not cease to be a UCEB for phase-in purposes merely because the UCE has already occurred or its occurrence has become reasonably predictable. This interpretation is supported by the plain language of ERISA section 4022(b)(8), which incorporates ERISA section 206(g)(1)(C). Section 206(g)(1)(C) expressly defines a UCEB not in terms of degree of predictability, but rather whether a benefit is “payable solely by reason of a shutdown or similar event . . . or an event other than the attainment of any age, performance of any service, receipt or derivation of any compensation, or occurrence of death or disability.” In other words, section 206(g)(1)(C) provides that a UCEB remains a UCEB after the UCE occurs. Because many events that are not reliably and reasonably predictable become predictable immediately before they occur, and the concept of predictability does not apply to events after they have occurred, PBGC interprets ERISA section 4022(b)(8) to apply to benefits such as shutdown benefits regardless of whether the events triggering those benefits have already occurred or have become predictable.

Date UCE Occurs

Under the final regulation, PBGC determines the date a UCE occurs based on the plan provisions and other facts and circumstances, including the nature and level of activity at a facility that is closing and the permanence of the event. Statements or determinations by the employer, the plan administrator, a union, an arbitrator under a collective bargaining agreement, or a court about the date of the event may be relevant but are not controlling. Where a plan provides that a UCEB is payable only upon the occurrence of more than one UCE, the regulation provides that the guarantee is phased in from the latest date when all such UCEs have occurred. For example, if a UCEB is payable only if a participant is laid off and the layoff continues for a specified period of time, the phase-in period begins at the end of the specified period of time. Similarly, if a UCEB is payable only if both the plant where an employee worked is permanently shut down and it is determined that the employer has no other suitable employment for the employee, the phase-in period begins when it is determined that the employer had no other suitable employment for the employee (assuming that date was later than the shutdown date).

The commenter expressed concern that the proposed “facts and circumstances” standard granted PBGC broad discretionary authority to reduce participants' guaranteed benefits and requested that this discretion should be limited, in general, by granting deference to eligibility determinations made by the plan sponsor (when acting as plan administrator), or that PBGC should be bound by the decision of an arbitrator, benefit agreement or judicial decision construing a collective bargaining agreement. The commenter points out that such deference is especially appropriate where participants are receiving benefits and have relied upon those determinations.

Because shutdowns and similar situations are fact-specific, PBGC continues to believe that a facts-and-circumstances approach is the best way to implement the statute. However, PBGC agrees with the commenter that determinations made by a plan, arbitrator, or court regarding the date when participants became entitled to the UCEB may be relevant. Accordingly, in response to the comment, § 4022.27(d) of the final regulation specifically includes determinations and statements by such parties as factors that will be considered, to the extent relevant, in establishing the UCE date. PBGC will not, however, treat any such determinations or statements as controlling.

This change does not alter the principle that PBGC is ultimately responsible for determining participants' guaranteed benefits. The agency administers a program that places statutory limits on benefits, and it is not generally bound by a private party's determination of benefits.

Whether a UCEB phase-in determination applies on a participant-by-participant basis, as opposed to facility-wide or some other basis, will depend largely upon plan provisions. For example, a benefit triggered by a reduction-in-force would be determined with respect to each participant, and thus layoffs that occur on different dates would generally be distinct UCEs. See Example 2 of the final regulation (§ 4022.27(e)(2)). But a benefit payable only upon the complete shutdown of the employer's entire operations applies plan-wide, and thus the shutdown date generally is the date of the UCE for all participants.

The commenter expressed concern that in cases of sequential layoffs, participants laid off early in a shutdown process would obtain a greater phase-in percentage than participants laid off later in the process. The commenter suggested that sequential layoffs resulting in a shutdown should be viewed as a single event, and the UCE date should be the date on which the sponsor decided upon the layoffs, or at the latest, the date on which the first participants are laid off. PBGC has not adopted this suggestion.

In the case of a sequential layoff where the plan provides that benefits become payable as of the layoff date, it is true that a participant-by-participant determination of the UCE date could result in participants laid off early in a shutdown process receiving a greater phase-in percentage than participants laid off later in the process. However, that result is dictated by plan language that conditions a benefit upon the participant's layoff, and ERISA section 4022(b)(8), which requires that the phase-in period commence no earlier than the date of the event that triggers the UCEB. Setting a phase-in date that is prior to the date of the event that made the layoff benefit payable would not accord with the statute and therefore would be beyond PBGC's authority.10

10 In contrast, where the plan provides that a UCEB is payable only when all participants are laid off and the plant is permanently shut down, the plan itself has created a benefit trigger that is actually a single event, and therefore phase-in would commence as of the same date for all participants.

The commenter also requested that the final rule require that PBGC explain in detail, as part of the benefit determination process, the reasons for its selection of the triggering date on which the phase-in is based, if that date is different from the triggering date used by the plan. PBGC's regulations do not specify the amount of detail to be included in benefit determinations, in order to preserve flexibility in dealing with a wide variety of plans and plan provisions. In issuing benefit determinations to participants and beneficiaries, PBGC carefully balances providing additional information with reducing the potential for confusion from undue complexity. However, PBGC understands the commenter's concern and is committed to transparency in its communications with participants and beneficiaries. In response to the comment, PBGC's policy will be to provide the UCE date and the information necessary to understand it, in all benefit determinations, with the amount of additional information necessarily varying from case to case.

Date Phase-In Begins

ERISA sections 4022(b)(1) and 4022(b)(7) provide that PBGC's guarantee of a benefit increase is phased in from the date the benefit increase is “in effect,” i.e., from the later of the adoption date or effective date of the increase. ERISA section 4022(b)(8) (added by PPA 2006) provides that, for phase-in purposes, shutdown benefits and other UCEBs are deemed to be “adopted on the date . . . [the UCE] occurs.” Thus ERISA section 4022(b)(8) protects PBGC in the typical situation where a shutdown or permanent layoff occurs long after a shutdown benefit provision was originally adopted.

Section 4022(b)(8) could be read to produce an incongruous result in an unusual situation where the UCE occurs first and a UCEB is adopted later, effective retroactive to the UCE. Because the date of the UCE would be treated under section 4022(b)(8) as the adoption date of the UCEB, in this situation the phase-in arguably would begin on the date of the UCE, rather than on the actual adoption date of the plan amendment, as under pre-PPA 2006 law. The result would be a more generous—and more costly—guarantee of UCEBs than under pre-PPA 2006 law. To avoid this incongruous result, § 4022.27(c) provides that a benefit increase due solely to a UCEB is “in effect” as of the latest of the adoption date of the plan provision that provides for the UCEB, the effective date of the UCEB, or the date the UCE occurs.

Finally, if a UCEB becomes payable because a restriction under IRC section 436 is removed after, for example, an adequate funding contribution is made, the effective date of the UCEB for phase-in purposes is determined without regard to the restriction.

Allocation of Assets

When PBGC becomes trustee of a pension plan that terminates without sufficient assets to provide all benefits, it allocates plan assets to plan benefits in accordance with the statutory priority categories in section 4044 of ERISA. The category to which a particular benefit is assigned in the asset allocation can affect insurance program costs and the extent to which participants receive nonguaranteed benefits.

Priority category 3 in the asset allocation is particularly important, because it often includes benefits that, depending on the level of the plan assets, may be paid by PBGC even though not guaranteed. Priority category 3 contains only those benefits that were in pay status at least three years before the termination date of the plan (or that would have been in pay status if the participant had retired before that three-year period). An individual's benefit amount in priority category 3 is based on the plan provisions in effect during the five-year period preceding plan termination under which the benefit amount would be the least. Thus priority category 3 does not include benefit increases that were adopted or became effective in the five years before plan termination or, in some cases as discussed below, the bankruptcy filing date.

PBGC considered whether the UCEBs that are not guaranteed under the PPA 2006 changes should be excluded from priority category 3. Under that approach, plan assets would go farther to pay for other benefits, especially guaranteed benefits, and participants would be less likely to receive UCEBs that are not guaranteed. Alternatively, if UCEBs that are not guaranteed under the PPA 2006 changes were included in priority category 3—as they are under pre-PPA law and PBGC's current regulation on Allocation of Assets (part 4044)—plan assets would be less likely to reach other benefits, especially guaranteed benefits, and participants would be more likely to receive UCEBs that are not guaranteed.

Because section 403 of PPA 2006 does not make any reference to section 4044,11 PBGC concluded that the latter interpretation is the better one, and thus the final regulation, like the proposed regulation, does not amend part 4044.

On June 14, 2011 (76 FR 34590), PBGC published a final rule, “Bankruptcy Filing Date Treated as Plan Termination Date for Certain Purposes; Guaranteed Benefits; Allocation of Plan Assets; Pension Protection Act of 2006,” to implement section 404 of PPA 2006, which added a new section 4022(g) to ERISA. This section provides that when an underfunded plan terminates while its contributing sponsor is in bankruptcy, the amount of guaranteed benefits under section 4022 will be determined as of the date the sponsor entered bankruptcy (bankruptcy filing date) rather than as of the termination date. The provision applies to plans terminating while the sponsor is in bankruptcy, if the bankruptcy filing date is on or after September 16, 2006.12

12 See definition of “PPA 2006 bankruptcy termination” in § 4001.2.

Section 4022(g) applies to all types of plan benefits, including UCEBs. Under this provision, if a permanent shutdown (or other UCE) occurs after the bankruptcy filing date, UCEBs arising from the UCE are not guaranteed because the benefits are not nonforfeitable as of the bankruptcy filing date. Similarly, if the shutdown (or other UCE) occurs before the bankruptcy filing date, the five-year phase-in period for any resulting UCEBs is measured from the date of the UCE to the bankruptcy filing date, rather than to the plan termination date. For example, if a permanent shutdown occurs three years before the bankruptcy filing date, the guarantee of any resulting UCEBs will be only 60 percent phased in, even if the shutdown was more than five years before the plan's termination date. This rule is illustrated by Examples 4 and 5 in the regulation (§ 4022.27(e)(4) and (5), respectively).

PBGC considered whether UCEBs could be excepted from the section 4022(g) bankruptcy provision on the ground that the general phase-in rule in section 4022(g) is superseded by the specific section 4022(b)(8) phase-in rule for UCEBs. However, PBGC concluded that the language of the bankruptcy and UCEB statutory provisions does not allow for any such exception. The UCEB provision alters the starting date for phase-in of UCEBs, while the bankruptcy provision alters the date beyond which no further phase-in is allowed for any benefit increase, including a UCEB. PBGC sees no conflict in applying both provisions to UCEBs.

Estimated Guaranteed Benefits

ERISA section 4041(c)(3)(D)(ii)(IV) requires administrators of plans terminating in a distress termination to limit payment of benefits to estimated guaranteed benefits and estimated non-guaranteed benefits funded under section 4044, beginning on the proposed termination date. Section 4022.62 of PBGC's regulation on Benefits Payable in Terminated Single-Employer Plans contains rules for computing estimated guaranteed benefits, including provisions for estimating guaranteed benefits when a new benefit or benefit increase was added to the plan within five years before plan termination. The final regulation, like the proposed regulation, amends § 4022.62 to provide that the date the UCE occurs is treated as the date the UCEB was adopted, i.e., the date the plan was amended to include the UCEB.

Applicability

The amendments in this final rule, like section 403 of PPA 2006, will apply to UCEBs that become payable as a result of a UCE that occurs after July 26, 2005.

PBGC has determined, in consultation with the Office of Management and Budget, that this final rule not is a “significant regulatory action” under Executive Order 12866.

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. Executive Orders 12866 and 13563 require that a comprehensive regulatory impact analysis be performed for any economically significant regulatory action, defined as an action that would result in an annual effect of $100 million or more on the national economy or which would have other substantial impacts. In accordance with OMB Circular A-4, PBGC has examined the economic and policy implications of this final rule and has concluded that the action's benefits justify its costs.

Under Section 3(f)(1) of Executive Order 12866, a regulatory action is economically significant if “it is likely to result in a rule that may . . . [h]ave an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities.” This final rule does not cross the $100 million threshold for economic significance and is not otherwise economically significant.

The economic effect of the final rule is entirely attributable to the economic effect of section 403 of PPA 2006. Three factors tend to reduce the economic impact of section 403.

First, before section 403 went into effect, PBGC often involuntarily terminated plans with shutdown liabilities before company-wide shutdowns, under the “long-run loss” provision in section 4042(a)(4) of ERISA. That provision allows PBGC to initiate termination proceedings if its long-run loss “may reasonably be expected to increase unreasonably if the plan is not terminated.” A sudden increase in PBGC's liabilities resulting from a shutdown could create just such an unreasonable increase in long-run loss. Section 403 avoids the need for PBGC to make case-by-case decisions whether to initiate such “pre-emptive” terminations. Although it is difficult to make assumptions about PBGC's ability and intent to pursue such terminations if section 403 had not gone into effect, this factor tends to reduce its economic impact.

Second, another PPA 2006 amendment provides that if a plan terminates while the sponsor is in bankruptcy, the amount of benefits guaranteed by PBGC is fixed at the date of the bankruptcy filing rather than at the plan termination date. Because of that provision, if a plant shutdown or other UCE occurred between the bankruptcy filing date and the termination date, the resulting UCEB would not be guaranteed at all, and thus section 403 would have no economic effect.

Third—and perhaps most important—as also discussed above, other PPA 2006 provisions restrict payment of UCEBs if a plan is less than 60 percent funded. If, because of those restrictions, a UCEB was not payable at all, section 403 again would have no economic effect.

As stated above in Applicability, section 403 of PPA 2006 applies to any UCEB that becomes payable as a result of a UCE that occurs after July 26, 2005. PBGC estimates that, to date, the total effect of section 403—in terms of lower benefits paid to participants and associated savings for PBGC—is less than $4 million. Although PBGC cannot predict with certainty which plans with UCEBs will terminate, the funding level of such plans, or what benefits will be affected by the guarantee limits, given the relatively low estimate of the effect of the statutory provision to date, PBGC has determined that the annual effect of the rule will be less than $100 million.

Regulatory Flexibility Act

PBGC certifies under section 605(b) of the Regulatory Flexibility Act that this final rule will not have a significant economic impact on a substantial number of small entities. The amendments implement and in some cases clarify statutory changes made in PPA 2006; they do not impose new burdens on entities of any size. Virtually all of the statutory changes affect only PBGC and persons who receive benefits from PBGC. Accordingly, sections 603 and 604 of the Regulatory Flexibility Act do not apply.

For the reasons given above, PBGC is amending 29 CFR part 4022 as follows:

PART 4022—BENEFITS PAYABLE IN TERMINATED SINGLE-EMPLOYER PLANS1. The authority citation for part 4022 continues to read as follows:Authority:

29 U.S.C. 1302, 1322, 1322b, 1341(c)(3)(D), and 1344.

2. In § 4022.2:a. Amend the definition of “benefit increase” by removing the final “and” in the second sentence and adding in its place, “an unpredictable contingent event benefit, and”; andb. Add in alphabetical order definitions for unpredictable contingent event (UCE) and unpredictable contingent event benefit (UCEB) to read as follows:§ 4022.2 Definitions.

Unpredictable contingent event (UCE) has the same meaning as unpredictable contingent event in section 206(g)(1)(C) of ERISA and Treas. Reg. § 1.436-1(j)(9) (26 CFR 1.436-1(j)(9)). It includes a plant shutdown (full or partial) or a similar event (such as a full or partial closing of another type of facility, or a layoff or other workforce reduction), or any event other than the attainment of any age, performance of any service, receipt or derivation of any compensation, or occurrence of death or disability.

Unpredictable contingent event benefit (UCEB) has the same meaning as unpredictable contingent event benefit in section 206(g)(1)(C) of ERISA and Treas. Reg. § 1.436-1(j)(9) (26 CFR 1.436-1(j)(9)). Thus, a UCEB is any benefit or benefit increase to the extent that it would not be payable but for the occurrence of a UCE. A benefit or benefit increase that is conditioned upon the occurrence of a UCE does not cease to be a UCEB as a result of the contingent event having occurred or its occurrence having become reasonably predictable.

(a) Scope. This section applies to a benefit increase, as defined in § 4022.2, that is an unpredictable contingent event benefit (UCEB) and that is payable with respect to an unpredictable contingent event (UCE) that occurs after July 26, 2005.

(1) Examples of benefit increases within the scope of this section include unreduced early retirement benefits or other early retirement subsidies, or other benefits to the extent that such benefits would not be payable but for the occurrence of one or more UCEs.

(2) Examples of UCEs within the scope of this section include full and partial closings of plants or other facilities, and permanent workforce reductions, such as permanent layoffs. Permanent layoffs include layoffs during which an idled employee continues to earn credited service (creep-type layoff) for a period of time at the end of which the layoff is deemed to be permanent. Permanent layoffs also include layoffs that become permanent upon the occurrence of an additional event such as a declaration by the employer that the participant's return to work is unlikely or a failure by the employer to offer the employee suitable work in a specified area.

(3) The examples in this section are not an exclusive list of UCEs or UCEBs and are not intended to narrow the statutory definitions, as further delineated in Treasury Regulations.

(b) Facts and circumstances. If PBGC determines that a benefit is a shutdown benefit or other type of UCEB, the benefit will be treated as a UCEB for purposes of this subpart. PBGC will make such determinations based on the facts and circumstances, consistent with these regulations; how a benefit is characterized by the employer or other parties may be relevant but is not determinative.

(c) Date phase-in begins. (1) The date the phase-in of PBGC's guarantee of a UCEB begins is determined in accordance with subpart B of this part. For purposes of this subpart, a UCEB is deemed to be in effect as of the latest of—

(i) The adoption date of the plan provision that provides for the UCEB,

(ii) The effective date of the UCEB, or

(iii) The date the UCE occurs.

(2) The date the phase-in of PBGC's guarantee of a UCEB begins is not affected by any delay that may occur in placing participants in pay status due to removal of a restriction under section 436(b) of the Code. See the example in paragraph (e)(8) of this section.

(d) Date UCE occurs. For purposes of this section, PBGC will determine the date the UCE occurs based on plan provisions and other facts and circumstances, including the nature and level of activity at a facility that is closing and the permanence of the event. PBGC will also consider, to the extent relevant, statements or determinations by the employer, the plan administrator, a union, an arbitrator under a collective bargaining agreement, or a court, but will not treat such statements or determinations as controlling.

(1) The date a UCE occurs is determined on a participant-by-participant basis, or on a different basis, such as a facility-wide or company-wide basis, depending upon plan provisions and the facts and circumstances. For example, a benefit triggered by a permanent layoff of a participant would be determined with respect to each participant, and thus layoffs that occur on different dates would generally be distinct UCEs. In contrast, a benefit payable only upon a complete plant shutdown would apply facility-wide, and generally the shutdown date would be the date of the UCE for all participants who work at that plant. Similarly, a benefit payable only upon the complete shutdown of the employer's entire operations would apply plan-wide, and thus the shutdown date of company operations generally would be the date of the UCE for all participants.

(2) For purposes of paragraph (c)(1)(iii) of this section, if a benefit is contingent upon more than one UCE, PBGC will apply the rule under Treas. Reg. § 1.436-1(b)(3)(ii) (26 CFR 1.436-1(b)(3)(ii)) (i.e., the date the UCE occurs is the date of the latest UCE).

(e) Examples. The following examples illustrate the operation of the rules in this section. Except as provided in Example 8, no benefit limitation under Code section 436 applies in any of these examples. Unless otherwise stated, the termination is not a PPA 2006 bankruptcy termination.

Example 1.

Date of UCE. (i) Facts: On January 1, 2006, a Company adopts a plan that provides an unreduced early retirement benefit for participants with specified age and service whose continuous service is broken by a permanent plant closing or permanent layoff that occurs on or after January 1, 2007. On January 1, 2013, the Company informally and without announcement decides to close Facility A within a two-year period. On January 1, 2014, the Company's Board of Directors passes a resolution directing the Company's officers to close Facility A on or before September 1, 2014. On June 1, 2014, the Company issues a notice pursuant to the Worker Adjustment and Retraining Notification (WARN) Act, 29 U.S.C. 2101, et seq., that Facility A will close, and all employees will be permanently laid off, on or about August 1, 2014. The Company and the Union representing the employees enter into collective bargaining concerning the closing of Facility A and on July 1, 2014, they jointly agree and announce that Facility A will close and employees who work there will be permanently laid off as of November 1, 2014. However, due to unanticipated business conditions, Facility A continues to operate until December 31, 2014, when operations cease and all employees are permanently laid off. The plan terminates as of December 1, 2015.

(ii) Conclusion: PBGC would determine that the UCE is the facility closing and permanent layoff that occurred on December 31, 2014. Because the date that the UCE occurred (December 31, 2014) is later than both the date the plan provision that established the UCEB was adopted (January 1, 2006) and the date the UCEB became effective (January 1, 2007), December 31, 2014, would be the date the phase-in period under ERISA section 4022 begins. In light of the plan termination date of December 1, 2015, the guarantee of the UCEBs of participants laid off on December 31, 2014, would be 0 percent phased in.

Example 2.

Sequential layoffs. (i) Facts: The same facts as Example 1, with these exceptions: Not all employees are laid off on December 31, 2014. The Company and Union agree to and subsequently implement a shutdown in which employees are permanently laid off in stages—one third of the employees are laid off on October 31, 2014, another third are laid off on November 30, 2014, and the remaining one-third are laid off on December 31, 2014.

(ii) Conclusion: Because the plan provides that a UCEB is payable in the event of either a permanent layoff or a plant shutdown, PBGC would determine that phase-in begins on the date of the UCE applicable to each of the three groups of employees. Because the first two groups of employees were permanently laid off before the plant closed, October 31, 2014, and November 30, 2014, are the dates that the phase-in period under ERISA section 4022 begins for those groups. Because the third group was permanently laid off on December 31, 2014, the same date the plant closed, the phase-in period would begin on that date for that group. Based on the plan termination date of December 1, 2015, participants laid off on October 31, 2014, and November 30, 2014, would have 20 percent of the UCEBs (or $20 per month, if greater) guaranteed under the phase-in rule. The guarantee of the UCEBs of participants laid off on December 31, 2014, would be 0 percent phased in.

Example 3.

Skeleton shutdown crews. (i) Facts: The same facts as Example 1, with these exceptions: The plan provides for an unreduced early retirement benefit for age/service-qualified participants only in the event of a break in continuous service due to a permanent and complete plant closing. A minimal skeleton crew remains to perform primarily security and basic maintenance functions until March 31, 2015, when skeleton crew members are permanently laid off and the facility is sold to an unrelated investment group that does not assume the plan or resume business operations at the facility. The plan has no specific provision or past practice governing benefits of skeleton shutdown crews. The plan terminates as of January 1, 2015.

(ii) Conclusion: Because the continued employment of the skeleton crew does not effectively continue operations of the facility, PBGC would determine that there is a permanent and complete plant closing (for purposes of the plan's plant closing provision) as of December 31, 2014, which is the date the phase-in period under ERISA section 4022 begins with respect to employees who incurred a break in continuous service at that time. The UCEB of those participants would be a nonforfeitable benefit as of the plan termination date, but PBGC's guarantee of the UCEB would be 0 percent phased in. In the case of the skeleton crew members, such participants would not be eligible for the UCEB because they did not incur a break in continuous service until after the plan termination date. (If the plan had a provision that there is no shutdown until all employees, including any skeleton crew are terminated, or if the plan were reasonably interpreted to so provide in light of past practice, PBGC would determine that the date that the UCE occurred was after the plan termination date. Thus the UCEB would not be a nonforfeitable benefit as of the plan termination date and therefore would not be guaranteeable.)

Example 4.

Creep-type layoff benefit/bankruptcy of contributing sponsor. (i) Facts: A plan provides that participants who are at least age 55 and whose age plus years of continuous service equal at least 80 are entitled to an unreduced early retirement benefit if their continuous service is broken due to a permanent layoff. The plan further provides that a participant's continuous service is broken due to a permanent layoff when the participant is terminated due to the permanent shutdown of a facility, or the participant has been on layoff status for two years. These provisions were adopted and effective in 1990. Participant A is 56 years old and has 25 years of continuous service when he is laid off in a reduction-in-force on May 15, 2014. He is not recalled to employment, and on May 15, 2016, under the terms of the plan, his continuous service is broken due to the layoff. He goes into pay status on June 1, 2016, with an unreduced early retirement benefit. The contributing sponsor of Participant A's plan files a bankruptcy petition under Chapter 11 of the U.S. Bankruptcy Code on September 1, 2017, and the plan terminates during the bankruptcy proceedings with a termination date of October 1, 2018. Under section 4022(g) of ERISA, because the plan terminated while the contributing sponsor was in bankruptcy, the five-year phase-in period ended on the bankruptcy filing date.

(ii) Conclusion: PBGC would determine that the guarantee of the UCEB is phased in beginning on May 15, 2016, the date of the later of the two UCEs necessary to make this benefit payable (i.e., the first UCE is the initial layoff and the second UCE is the expiration of the two-year period without rehire). Since that date is more than one year (but less than two years) before the September 1, 2017, bankruptcy filing date, 20 percent of Participant A's UCEB (or $20 per month, if greater) would be guaranteed under the phase-in rule.

Example 5.

Creep-type layoff benefit with provision for declaration that return to work unlikely. (i) Facts: A plan provides that participants who are at least age 60 and have at least 20 years of continuous service are entitled to an unreduced early retirement benefit if their continuous service is broken by a permanent layoff. The plan further provides that a participant's continuous service is broken by a permanent layoff if the participant is laid off and the employer declares that the participant's return to work is unlikely. Participants may earn up to 2 years of credited service while on layoff. The plan was adopted and effective in 1990. On March 1, 2014, Participant B, who is age 60 and has 20 years of service, is laid off. On June 15, 2014, the employer declares that Participant B's return to work is unlikely. Participant B retires and goes into pay status as of July 1, 2014. The employer files for bankruptcy on September 1, 2016, and the plan terminates during the bankruptcy.

(ii) Conclusion: PBGC would determine that the phase-in period of the guarantee of the UCEB would begin on June 15, 2014—the later of the two UCEs necessary to make the benefit payable (i.e., the first UCE is the initial layoff and the second UCE is the employer's declaration that it is unlikely that Participant B will return to work). The phase-in period would end on September 1, 2016, the date of the bankruptcy filing. Thus 40 percent of Participant B's UCEB (or $40 per month, if greater) would be guaranteed under the phase-in rule.

Example 6.

Shutdown benefit with special post-employment eligibility provision. (i) Facts: A plan provides that, in the event of a permanent shutdown of a plant, a participant age 60 or older who terminates employment due to the shutdown and who has at least 20 years of service is entitled to an unreduced early retirement benefit. The plan also provides that a participant with at least 20 years of service who terminates employment due to a plant shutdown at a time when the participant is under age 60 also will be entitled to an unreduced early retirement benefit, provided the participant's commencement of benefits is on or after attainment of age 60 and the time required to attain age 60 does not exceed the participant's years of service with the plan sponsor. The plan imposes no other conditions on receipt of the benefit. Plan provisions were adopted and effective in 1990. On January 1, 2014, Participant C's plant is permanently shut down. At the time of the shutdown, Participant C had 20 years of service and was age 58. On June 1, 2015, Participant C reaches age 60 and retires. The plan terminates as of September 1, 2015.

(ii) Conclusion: PBGC would determine that the guarantee of the shutdown benefit is phased in from January 1, 2014, which is the date of the only UCE (the permanent shutdown of the plant) necessary to make the benefit payable. Thus 20 percent of Participant C's UCEB (or $20 per month, if greater) would be guaranteed under the phase-in rule.

Example 7.

Phase-in of retroactive UCEB. (i) Facts: As the result of a settlement in a class-action lawsuit, a plan provision is adopted on September 1, 2014, to provide that age/service-qualified participants are entitled to an unreduced early retirement benefit if permanently laid off due to a plant shutdown occurring on or after January 1, 2014. Benefits under the provision are payable prospectively only, beginning March 1, 2015. Participant A, who was age/service-qualified, was permanently laid off due to a plant shutdown occurring on January 1, 2014, and therefore he is scheduled to be placed in pay status as of March 1, 2015. The unreduced early retirement benefit is paid to Participant A beginning on March 1, 2015. The plan terminates as of February 1, 2017.

(ii) Conclusion: PBGC would determine that the guarantee of the UCEB is phased in beginning on March 1, 2015. This is the date the benefit was effective (since it was the first date on which the new benefit was payable), and it is later than the adoption date of the plan provision (September 1, 2014) and the date of the UCE (January 1, 2014). Thus 20 percent of Participant A's UCEB (or $20 per month, if greater) would be guaranteed under the phase-in rule.

Example 8.

Removal of IRC section 436 restriction. (i)(A) Facts: A plan provision was adopted on September 1, 1989, to provide that age/service-qualified participants are entitled to an unreduced early retirement benefit if permanently laid off due to a plant shutdown occurring after January 1, 1990. Participant A, who was age/service-qualified, was permanently laid off due to a plant shutdown occurring on April 15, 2014. The plan is a calendar year plan.

(B) Under the rules of Code section 436 (ERISA section 206(g)) and Treasury regulations thereunder, a plan cannot provide a UCEB payable with respect to an unpredictable contingent event, if the event occurs during a plan year in which the plan's adjusted funding target attainment percentage is less than 60%. On March 17, 2014, the plan's enrolled actuary issued a certification stating that the plan's adjusted funding target attainment percentage for 2014 is 58%. Therefore, the plan restricts payment of the unreduced early retirement benefit payable with respect to the shutdown on April 15, 2014.

(C) On August 15, 2014, the plan sponsor makes an additional contribution to the plan that is designated as a contribution under Code section 436(b)(2) to eliminate the restriction on payment of the shutdown benefits. On September 15, 2014, the plan's enrolled actuary issues a certification stating that, due to the additional section 436(b)(2) contribution, the plan's adjusted funding target attainment percentage for 2014 is 60%. On October 1, 2014, Participant A is placed in pay status for the unreduced early retirement benefit and, as required under Code section 436 and Treasury regulations thereunder, is in addition paid retroactively the unreduced benefit for the period May 1, 2014 (the date the unreduced early retirements would have become payable) through September 1, 2014. The plan terminates as of September 1, 2016.

(ii) Conclusion: PBGC would determine that the guarantee of the UCEB is phased in beginning on April 15, 2014, the date the UCE occurred. Because April 15, 2014, is later than both the date the UCEB was adopted (September 1, 1989) and the date the UCEB became effective (January 1, 1990), it would be the date the phase-in period under ERISA section 4022 begins. Commencement of the phase-in period is not affected by the delay in providing the unreduced early retirement benefit to Participant A due to the operation of the rules of Code section 436 and the Treasury regulations thereunder. Thus 40 percent of Participant A's UCEB (or $40 per month, if greater) would be guaranteed under the phase-in rule.

6. In § 4022.62(c)(2)(i), add a sentence after the third sentence to read as follows:§ 4022.62 Estimated guaranteed benefit.

(c) * * *

(2) * * *

(i) * * * “New benefits” also result from increases that become payable by reason of the occurrence of an unpredictable contingent event (provided the event occurred after July 26, 2005), to the extent the increase would not be payable but for the occurrence of the event; in the case of such new benefits, the date of the occurrence of the unpredictable contingent event is treated as the amendment date for purposes of Table I. * * *

Office of the Under Secretary of Defense for Personnel and Readiness, DoD.

ACTION:

Final rule.

SUMMARY:

This final rule updates Department of Defense (DoD) policy and responsibilities and prescribes procedures for the implementation and use of the FACAT in accordance with 10 U.S.C. 1794. It is DoD policy to provide a safe and secure environment for DoD personnel and their families by promoting the prevention, early identification, and intervention in all allegations of child abuse and neglect.

To establish DoD policy, assign responsibilities, and prescribe procedures for implementation and use of the multi-disciplinary Family Advocacy Command Assistant Team to respond to allegations of child sexual abuse in DoD-sanctioned childcare and youth activities.

a. The need for the regulatory action and how the action will meet that need.

Child sexual abuse allegations in DoD sponsored childcare and youth activities require a coordinated community response between law enforcement, child protection agencies, and the setting from which the allegation arose. Local teams who may not be sufficiently resourced to conduct large scale investigations and coordinate an effective multi-level response can request the deployment and support of the FACAT to foster cooperation among the DoD, other Federal agencies, and responsible civilian authorities when addressing allegations of child sexual abuse in DoD-sanctioned activities; promote timely and comprehensive reporting of all allegations; and actively seek prosecution of alleged perpetrators to the fullest extent of the law.

b. Statement of legal authority for the regulatory action.

Section 1794 of title 10, United States Code (U.S.C.) requires the Secretary of Defense to maintain a special task force to respond to allegations of widespread child abuse at a military installation. The task force shall be composed of personnel from appropriate disciplines, including, medicine, psychology, and child development. This task force will provide assistance to the commander of the installation, and to parents at the installation, to effectively deal with the allegations.

II. Summary of the Major Provisions of the Regulatory Action in Question

a. This regulatory action establishes a DoD multi-disciplinary Family Advocacy Command Assistant Team (FACAT) to support local installation personnel in responding to extrafamilial child sexual abuse allegations in DoD sanctioned childcare and youth activities.

b. The deployment of the FACAT provides a coordinated and comprehensive DoD response to assist the Military Department upon DoD Component request to address allegations when local resources are limited.

c. The goal of the FACAT is to foster cooperation among the DoD, other Federal agencies, and responsible civilian authorities when addressing allegations of extrafamilial child sexual abuse in DoD-sanctioned activities, to ensure the timely and comprehensive reporting of all incidents to the appropriate authorities, and to seek prosecution of alleged perpetrators to the fullest extent of the law when appropriate.

III. Costs and Benefits

The benefit to the Department and to the public is to provide safe and secure environments for children of DoD personnel and their families by promoting a coordinated community response to allegations of child sexual abuse arising in DoD sponsored childcare and youth activities settings. The deployment of the FACAT to support local communities ensures that alleged offenders are identified, assessed, investigated, and prosecuted to the full extent of the law. Further, the multidisciplinary and well-coordinated approach promotes the identification of all potential child victims and provides a safe and secure setting for these children to be interviewed, assessed, and supported. Per Section 1794 of Title 10, United States Code, this rule has an internal reporting requirement that will cost the Department of Defense $600 annually. Costs for this program include salaries of government employees, training costs of approximately $30,000 every three years, and up to $15,000 to deploy a FACAT of five team members per response. There were no FACATs deployed in FY 2011, and there was one FACAT deployed in FY 2010. The cost of the FY 2010 deployment was approximately $7,500.

Public Comments

On Friday, April 26, 2013 (78 FR 24694-24697), the Department of Defense published a proposed rule requesting public comment. No comments were received on the proposed rule and no changes have been made in the final rule.

(1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy; a section of the economy; productivity; competition; jobs; the environment; public health or safety; or State, local, or tribal governments or communities;

(2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another Agency;

(3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs, or the rights and obligations of recipients thereof; or

(4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in these Executive Orders.

Sec. 202, Pub. L. 104-4, “Unfunded Mandates Reform Act”

It has been certified that 32 CFR part 60 does not contain a Federal mandate that may result in expenditure by State, local and tribal governments, in aggregate, or by the private sector, of $100 million or more in any one year.

Public Law 96-354, “Regulatory Flexibility Act” (5 U.S.C. 601)

It has been certified that 32 CFR part 60 is not subject to the Regulatory Flexibility Act (5 U.S.C. 601) because it would not, if promulgated, have a significant economic impact on a substantial number of small entities.

Public Law 96-511, “Paperwork Reduction Act” (44 U.S.C. Chapter 35)

It has been certified that 32 CFR part 60 does not impose reporting or recordkeeping requirements under the Paperwork Reduction Act of 1995.

Executive Order 13132, “Federalism”

It has been certified that 32 CFR part 60 does not have federalism implications, as set forth in Executive Order 13132. This rule does not substantial direct effects on:

(1) The States;

(2) The relationship between the National Government and the States; or

(3) The distribution of power and responsibilities among the various levels of Government.

This part establishes policy, assigns responsibilities, and prescribes procedures for implementation and use of the FACAT in accordance with 10 U.S.C. 1794.

§ 60.2 Applicability.

(a) This part applies to Office of the Secretary of Defense (OSD), the Military Departments, the Office of the Chairman of the Joint Chiefs of Staff and the Joint Staff, the Combatant Commands, the Office of the Inspector General of the Department of Defense, the Defense Agencies, the DoD Field Activities and all other organizational entities in the DoD (hereinafter referred to collectively as the “DoD Components”).

(b) The term “Military Services,” as used herein, refers to the Army, Navy, Air Force, and Marine Corps.

§ 60.3 Definitions.

Unless otherwise noted, these terms and their definitions are for the purpose of this part.

Child. An unmarried person under 18 years of age for whom a parent, guardian, foster parent, caregiver, employee of a residential facility, or any staff person providing out-of-home care is legally responsible. The term “child” means a biological child, adopted child, stepchild, foster child, or ward. The term also includes a sponsor's family member (except the sponsor's spouse) of any age who is incapable of self-support because of a mental or physical incapacity, and for whom treatment in a DoD medical treatment program is authorized.

Child abuse. The physical or sexual abuse, emotional abuse, or neglect of a child by a parent, guardian, foster parent, or by a caregiver, whether the caregiver is intrafamilial or extrafamilial, under circumstances indicating the child's welfare is harmed or threatened. Such acts by a sibling, other family member, or other person shall be deemed to be child abuse only when the individual is providing care under express or implied agreement with the parent, guardian, or foster parent.

Child sexual abuse. The employment, use, persuasion, inducement, enticement, or coercion of any child to engage in, or assist any other person to engage in, any sexually explicit conduct or simulation of such conduct for the purpose of producing a visual depiction of such conduct; or the rape, and in cases of caretaker or inter-familial relationships, statutory rape, molestation, prostitution, or other form of sexual exploitation of children, or incest with children.

DoD-sanctioned activity. A U.S. Government activity or a nongovernmental activity authorized by appropriate DoD officials to perform child care or supervisory functions on DoD controlled property. The care and supervision of children may be either its primary mission or incidental in carrying out another mission (e.g., medical care). Examples include Child Development Centers, Department of Defense Dependents Schools, Youth Activities, School Age/Latch Key Programs, Family Day Care providers, and child care activities that may be conducted as a part of a chaplain's program or as part of another Morale, Welfare, or Recreation Program.

FACAT. A multidisciplinary team composed of specially trained and experienced individuals who are on-call to provide advice and assistance on cases of child sexual abuse that involve DoD-sanctioned activities.

Family Advocacy Program Director (FAPD). An individual designated by the Secretary of the Military Department or the head of another DoD Component to manage, monitor, and coordinate the FAP at the headquarters level.

Family Advocacy Program Manager (FAPM). An individual designated by the Secretary of the Military Department to manage, monitor, and coordinate the FAP at the headquarters level.

Military criminal investigative organization (MCIO). U.S. Army Criminal Investigation Command, Naval Criminal Investigative Service, and Air Force Office of Special Investigations.

Out-of-home care. The responsibility of care for and/or supervision of a child in a setting outside the child's home by an individual placed in a caretaker role sanctioned by a DoD Component or authorized by a DoD Component as a provider of care. Examples include a child development center, school, recreation program, family child care, and child care activities that may be conducted as a part of a chaplain's program or as part of another morale, welfare, or recreation program.

§ 60.4 Policy.

It is DoD policy to:

(a) Provide a safe and secure environment for DoD personnel and their families by promoting the prevention, early identification, and intervention in all allegations of child abuse and neglect in accordance with DoD Directive 6400.1, “Family Advocacy Program (FAP)” (see http://www.dtic.mil/whs/directives/corres/pdf/640001p.pdf).

(b) Promote early identification and intervention in allegations of extrafamilial child sexual abuse in accordance with DoD Directive 6400.1 as it applies to DoD-sanctioned activities.

(c) Provide a coordinated and comprehensive DoD response through the deployment of the FACAT to assist the Military Department upon DoD Component request to address allegations of extrafamilial child sexual abuse in DoD-sanctioned activities.

(e) Promote timely and comprehensive reporting of all incidents covered by this part.

(f) As appropriate, actively seek prosecution of alleged perpetrators to the fullest extent of the law.

(g) Ensure that personally identifiable information, to include protected health information collected, used, and released by covered entities in the execution of this part is protected as required by DoD 6025.18-R, “DoD Health Information Privacy Regulation” (see http://www.dtic.mil/whs/directives/corres/pdf/602518r.pdf) and 5 U.S.C. 552a as implemented in the Department of Defense by 32 CFR part 310.

§ 60.5 Responsibilities.

(a) The Deputy Assistant Secretary of Defense for Military Community and Family Policy (DASD(MC&FP)), under the authority, direction, and control of the Assistant Secretary of Defense for Readiness and Force Management, shall:

(1) Monitor compliance with this part.

(2) Train, maintain, and support a team of full-time or permanent part-time federal officers or employees from various disciplines to comprise the FACAT and respond to child sexual abuse in DoD-sanctioned activities.

(3) Develop and coordinate criteria for determining the appropriate professional disciplines, support staff, and the required capabilities of FACAT members.

(4) Ensure that policies and guidelines on activation and use of the FACAT are shared and coordinated with the DoD Components.

(5) Program, budget, and allocate funds for the FACAT.

(6) Appoint the chief of the FACAT and team members, and provide required logistical support when the FACAT is deployed.

(7) Coordinate the management and interaction of this effort with other Federal and civilian agencies as necessary.

(8) Foster general awareness of FACAT goals and responsibilities.

(b) The Secretaries of the Military Departments shall:

(1) Ensure compliance with this part throughout their respective Departments.

(2) Establish departmental procedures to implement with this part.

(3) Designate nominees for the FACAT upon request and ensure replacements are nominated when vacancies are indicated.

(4) Ensure that commanders and staff are aware of the availability and proper use of the FACAT and the procedures for requesting a FACAT to assist in addressing extrafamilial child sexual abuse allegations covered by this part.

(5) Encourage timely and comprehensive reporting in accordance with this part.

§ 60.6 Procedures.

(a) Reporting requirements. Any person with a reasonable belief that an incident of child abuse has occurred in a DoD-sanctioned activity must report it to:

(b) Notification of suspected abuse—(1) Physical or emotional abuse or neglect. If a report of suspected child physical abuse, emotional abuse, or neglect in a DoD-sanctioned activity is made to the FAP, the FAPM shall:

(i) Notify the appropriate military or civilian law enforcement agency, or multiple law enforcement agencies as appropriate.

(iii) Consult with the person in charge of the DoD-sanctioned activity and the appropriate law enforcement agency to estimate the number of potential victims and determine whether an installation response team may be appropriate to address the investigative, medical, psychological, and public affairs issues that may arise.

(iv) Notify the installation commander of the allegation and recommend whether an installation response team may be appropriate to assess the current situation and coordinate the installation's response to the incidents.

(v) Submit a written follow-up report using DD Form 2952, “Closeout Report of Suspected Child Sexual Abuse in DoD Operated or Sponsored Activities,” through DoD Component channels regarding all allegations of child sexual abuse to the DASD(MC&FP) when:

(A) There have been significant changes in the status of the case;

(B) There are more than five potential victims;

(C) The sponsors of the victims are from different Military Services or DoD Components;

(D) There is increased community sensitivity to the allegation; or

(E) The DASD(MC&FP) has requested a follow-up report.

(c) Requesting a FACAT. An installation commander may request a FACAT through appropriate DoD Component channels from the DASD(MC&FP) when alleged child sexual abuse by a care provider in a DoD-sanctioned-activity has been reported and at least one of the following apply:

(1) Additional personnel are needed to:

(i) Fully investigate a report of child sexual abuse by a care provider or employee in a DoD-sanctioned activity;

(ii) Assess the needs of the child victims and their families; or

(iii) Provide supportive treatment to the child victims and their families.

(2) The victims are from different Military Services or DoD Components, or there are multiple care providers who are the subjects of the report from different Military Services or DoD Components.

(3) Significant issues in responding to the allegations have arisen between the Military Services or DoD Components and other Federal agencies or civilian authorities.

(4) The situation has potential for widespread public interest that could negatively impact performance of the DoD mission.

(d) Deployment of a FACAT. (1) The DASD(MC&FP) shall deploy a FACAT at the request of a DoD Component.

(2) The DASD(MC&FP) may deploy a FACAT at the request of the Head of the DoD Component without a request from the installation commander. Such circumstances include a case where:

(i) The victims are from different Military Services or DoD Components, or there are multiple care providers who are the subjects of the report from different Military Services or DoD Components;

(ii) Significant issues in responding to the allegations have arisen between the Military Services or DoD Components and other Federal agencies or civilian authorities; or

(iii) The situation has potential for widespread public interest that could negatively impact performance of the DoD mission.

(3) The DASD(MC&FP) shall configure the FACAT based on the information and recommendations of the requestor, the installation FAPM, and the FAPD of the DoD Component.

(4) The DASD(MC&FP) shall:

(i) Request the FAPDs to identify several individuals from the FACAT roster who are available for deployment.

(ii) Request, through the appropriate channels of the DoD Component, that the individuals' supervisors release them from normal duty positions to serve on temporary duty with the deploying FACAT.

(5) The DASD(MC&FP) shall provide fund citations to the FACAT members for their travel orders and per diem and shall provide information regarding travel arrangements. The FACAT members shall be responsible for preparing travel orders and making travel arrangements.

(6) FACAT members who are subject to DoD Instruction 6025.13, “Medical Quality Assurance (MQA) and Clinical Quality Management in the Military Health System (MHS)” (see http://www.dtic.mil/whs/directives/corres/pdf/602513p.pdf) shall be responsible for arranging temporary clinical privileges in accordance with DoD 6025.13-R, “Military Health System (MHS) Clinical Quality Assurance (CQA) Program Regulation” (see http://www.dtic.mil/whs/directives/corres/pdf/602513r.pdf) at the installation to which they shall be deployed.

(e) FACAT tasks. The FACAT shall meet with the installation's commanding officer, the MCIO, or designated response team to assess the current situation and assist in coordinating the installation's response to the incidents. Depending on the composition of the team, such tasks may include:

(1) Investigating the allegations.

(2) Conducting medical and mental health assessment of the victims and their families.

(3) Developing and implementing plans to provide appropriate treatment and support for the victims and their families and for the non-abusing staff of the DoD-sanctioned activity.

The Coast Guard is establishing a special local regulation on the Indian River located northeast of Ernest F. Lyons Bridge and south of Joes Cove, in Stuart, Florida during the Stuart Sailfish Regatta, a series of high-speed boat races. The Stuart Sailfish Regatta will take place from May 16 through May 18, 2014. Approximately 120 high-speed power boats will be participating in the event. It is anticipated that at least 100 spectator vessels will be present during the event. This special local regulation is necessary for the safety of race participants, participant vessels, spectators, and the general public during the event. The special local regulation will establish the following three areas: A race area, where all persons and vessels, except those participating in the high-speed boat races, are prohibited from entering, transiting through, anchoring in, or remaining within; a buffer zone around the race area, where all persons and vessels, except those persons and vessels enforcing the buffer zone, or authorized participants or vessels transiting to the race area, are prohibited from entering, transiting through, anchoring in, or remaining within; and a spectator area, where all persons are prohibited from entering the water or swimming in the designated area.

DATES:

This rule is effective from 8 a.m. until 5 p.m. on May 16, 2014 through May 18, 2014.

ADDRESSES:

You may submit comments identified by docket number using any one of the following methods:

See the “Public Participation and Request for Comments” portion of the SUPPLEMENTARY INFORMATION section below for further instructions on submitting comments. To avoid duplication, please use only one of these three methods.

FOR FURTHER INFORMATION CONTACT:

If you have questions on this rule, call or email Petty Officer John K. Jennings, Sector Miami Prevention Department, Coast Guard; telephone (305) 535-4317, email John.K.Jennings@uscg.mil. If you have questions on viewing or submitting material to the docket, call Cheryl Collins, Program Manager, Docket Operations, telephone (202) 366-9826.

On March 21, 2014, a Notice of Proposed Rulemaking (NPRM) entitled Special Local Regulation; Stuart Sailfish Regatta, Indian River; Stuart, FL in the Federal Register (77 FR 79 FR 15715). We received no comments on the proposed rule. No public meeting was requested, and none was held.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register. Any delay in the effective date of this rule would be contrary to the public interest, because immediate action is necessary to protect the safety of the participants from the dangers associated with other vessels transiting this area while the race occurs.

B. Basis and Purpose

The legal basis for the rule is the Coast Guard's authority to establish special local regulations: 33 U.S.C. 1233. The purpose of the rule is to provide for the safety of life on the navigable waters of the United States during the Stuart Sailfish Regatta.

C. Discussion of the Final Rule

From May 16 through May 18, 2014, Stuart Sailfish Regatta Inc. will be hosting the Stuart Sailfish Regatta, a series of high-speed boat races. The races will be held on the Indian River located northeast of Ernest F. Lyons Bridge and south of Joes Cove, in Stuart, Florida. Approximately 120 high-speed power boats will be participating in the event. It is anticipated that at least 100 spectator vessels will be present during the event.

The special local regulation will encompass certain navigable waters of the Indian River located northeast of Ernest F. Lyons Bridge and south of Joes Cove, in Stuart, Florida. The special local regulation will be enforced daily from 8 a.m. until 5 p.m. from May 16 through May 18, 2014. The special local regulation will consist of the following three areas: (1) A race area, where all persons and vessels, except those participating in the high-speed boat races, are prohibited from entering, transiting through, anchoring in, or remaining within; (2) a buffer zone around the race area, where all persons and vessels, except those persons and vessels enforcing the buffer zone, or authorized participants or vessels transiting to the race area, are prohibited from entering, transiting through, anchoring in, or remaining within; and (3) a spectator area, where all persons are prohibited from entering the water or swimming in the designated area.

Persons and vessels may request authorization to enter the special local regulated area by contacting the Captain of the Port Miami by telephone at 305-535-4472, or a designated representative via VHF radio on channel 16. If authorization to enter, transit through, anchor in, or remain within the special local regulated area is granted by the Captain of the Port Miami or a designated representative, all persons and vessels receiving such authorization must comply with the instructions of the Captain of the Port Miami or the designated representative.

D. Regulatory Analyses

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes or executive orders.

1. Regulatory Planning and Review

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, as supplemented by Executive Order 13563, Improving Regulation and Regulatory Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of Executive Order 12866 or under section 1 of Executive Order 13563. The Office of Management and Budget has not reviewed it under those Orders. The economic impact of this rule is not significant for the following reasons: (1) This special local regulation will be enforced for nine hours a day for three days; (2) non-participant persons and vessels may enter, transit through, anchor in, or remain within the regulated area during their respective enforcement periods if authorized by the Captain of the Port Miami or a designated representative; (3) non-participant persons and vessels not able to enter, transit through, anchor in, or remain within the regulated areas without authorization from the Captain of the Port Miami or a designated representative may operate in the surrounding areas during the respective enforcement periods; and (4) the Coast Guard will provide advance notification of the special local regulation to the local maritime community by Local Notice to Mariners and Broadcast Notice to Mariners.

2. Impact on Small Entities

The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612, as amended, requires federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. This rule may affect the following entities, some of which may be small entities: The owners or operators of vessels intending to enter, transit through, anchor in, or remain within any of the regulated area during the respective enforcement periods. For the reasons discussed in the Regulatory Planning and Review section above, this rule will not have a significant economic impact on a substantial number of small entities.

3. Assistance for Small Entities

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT, above.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

4. Collection of Information

This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

5. Federalism

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and determined that this rule does not have implications for federalism.

6. Protest Activities

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places or vessels.

7. Unfunded Mandates Reform Act

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

8. Taking of Private Property

This rule will not cause a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

11. Indian Tribal Governments

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

12. Energy Effects

This action is not a “significant energy action” under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use.

13. Technical Standards

This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

14. Environment

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f). The Coast Guard previously completed an environmental assessment for this event and regulation in 2012, as well as conducted a supplemental environmental assessment in 2013. The event and regulation for the 2012 and 2013 occurrences are similar in all aspects to this year's event and regulation; therefore the same environmental assessment and supplemental environmental assessment are being referenced for this year's event and regulation. The environmental assessment is available in the docket folder for USCG-2012-0150, and the supplemental environmental assessment is available in the docket folder USCG-2012-0150 at www.regulations.gov. This rule involves establishing a special local regulation that will be enforced from 8 a.m. until 5 p.m. daily May 16 through 18 2014. This rule is categorically excluded from further review under paragraph 34(h) of Figure 2-1 of the Commandant Instruction. We seek any comments or information that may lead to the discovery of a significant environmental impact from this rule.

(a) Regulated Areas. The following regulated area is established as a special local regulation. All coordinates are North American Datum 1983.

(1) Race Area. All waters of Indian River located northeast of Ernest Lyons Bridge and south of Joes Cove that are encompassed within the following points: starting at Point 1 in position 27°12′46″ N, 80°11′09″ W; thence southeast to Point 2 in position 27°12′41″ N, 80°11′08″ W; thence southwest to Point 3 in position 27°12′37″ N, 80°11′11″ W; thence southwest to Point 4 in position 27°12′33″ N, 80°11′18″ W; thence southwest to Point 5 in position 27°12′31″ N, 80°11′23″ W; thence west to Point 6 in position 27°12′31″ N, 80°11′27″ W; thence northwest to Point 7 in position 27°12′33″ N, 80°11′31″ W; thence northwest to Point 8 in position 27°12′38″ N, 80°11′32″ W; thence northeast to Point 9 in position 27°12′42″ N, 80°11′30″ W; thence northeast to Point 10 in position 27°12′46″ N, 80°11′26″ W; thence northeast to Point 11 in position 27°12′48″ N, 80°11′20″ W; thence east to Point 12 in position 27°12′48″ N, 80°11′15″ W; thence southeast back to origin. All persons and vessels, except those persons and vessels participating in the high-speed boat races, are prohibited from entering, transiting through, anchoring in, or remaining within the race area.

(2) Buffer Zone. All waters of Indian River located northeast of Ernest Lyons Bridge and south of Joes Cove that are encompassed within the following points: starting at Point 1 in position 27°12′47″ N, 80°11′43″ W; thence southeast to Point 2 in position 27°12′22″ N, 80°11′28″ W; thence northeast to Point 3 in position 27°12′35″ N, 80°11′00″ W; thence northwest to Point 4 in position 27°12′47″ N, 80°11′04″ W; thence northeast to Point 5 in position 27°13′05″ N, 80°11′01″ W; thence southeast back to origin. All persons and vessels, except those persons and vessels enforcing the buffer zone, or authorized participants or vessels transiting to the race area, are prohibited from entering, transiting through, anchoring in, or remaining within the buffer zone.

(3) Spectator Area. All waters of Indian River located northeast of Ernest Lyons Bridge and south of Joes Cove that are encompassed within the following points: starting at Point 1 in position 27°12′48″ N, 80°11′43″ W; thence northeast to Point 2 in position 27°12′55″ N, 80°11′26″ W; thence southeast to Point 3 in position 27°12′52″ N, 80°11′24″ W; thence southwest to Point 4 in position 27°12′40″ N, 80°11′39″ W; thence northwest back to origin. All persons are prohibited from entering the water or swimming in the spectator area.

(b) Definition. The term “designated representative” means Coast Guard Patrol Commanders, including Coast Guard coxswains, petty officers, and other officers operating Coast Guard vessels, and Federal, state, and local officers designated by or assisting the Captain of the Port Miami in the enforcement of the regulated areas.

(c) Regulations.

(1) Non-participant persons and vessels are prohibited from entering, transiting through, anchoring in, or remaining within the race area and/or buffer zone of the special local regulated area unless authorized by Captain of the Port Miami or a designated representative. All persons are prohibited from entering the water or swimming in the spectator area. Non-participant persons and vessels may request authorization to enter, transit through, anchor in, or remain within the race area and/or buffer zone of the special local regulated area by contacting the Captain of the Port Miami by telephone at 305-535-4472, or a designated representative via VHF radio on channel 16. If authorization is granted by the Captain of the Port Miami or a designated representative, all persons and vessels receiving such authorization must comply with the instructions of the Captain of the Port Miami or a designated representative.

(2) The Coast Guard will provide notice of the special local regulation by Local Notice to Mariners, Broadcast Notice to Mariners, and on-scene designated representatives.

(d) Effective Date. This rule will be enforced daily from 8 a.m. until 5 p.m. from May 16, 2014 through May 18, 2014.

The Coast Guard has issued a temporary deviation from the operating schedule that governs the Witt-Penn (Rt-7) Bridge across the Hackensack River at mile 3.1, at Jersey City, New Jersey. The deviation is necessary to facilitate replacement of the safety barrier gates at the bridge. This temporary deviation authorizes the bridge to remain in the closed position for five days.

DATES:

This deviation is effective from June 9, 2014 through June 13, 2014.

ADDRESSES:

The docket for this deviation, USCG-2014-0317 is available at http://www.regulations.gov. Type the docket number in the “SEARCH” box and click “SEARCH”. Click on Open Docket Folder on the line associated with this deviation. You may also visit the Docket Management Facility in Room W12-140 on the ground floor of the Department of Transportation West Building, 1200 New Jersey Avenue SE., Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT:

If you have questions on this temporary deviation, call or email Mr. Joe Arca, Project Officer, First Coast Guard District, telephone (212) 668-7165, email joe.m.arca@uscg.mil. If you have questions on viewing the docket, call Cheryl Collins, Program Manager, Docket Operations, telephone 202-366-9826.

SUPPLEMENTARY INFORMATION:

The Witt-Penn (Rt-7) Bridge across the Hackensack River at mile 3.1, at Jersey City, has a vertical clearance in the closed position of 35 feet at mean high water and 40 feet at mean low water. The existing drawbridge operation regulations are listed at 33 CFR 117.723. The waterway users are seasonal recreational vessels and commercial vessels of various sizes.

The owner of the bridge, New Jersey Department of Transportation, requested a temporary deviation from the operating schedule to facilitate replacement of the safety barrier gates at the bridge.

Under this temporary deviation the Witt-Penn (Rt-7) Bridge may remain in the closed position for five days from June 9, 2014 through June 13, 2014. There are no alternate routes for vessel traffic. The bridge could be opened in an emergency situation.

The Coast Guard will also inform the users of the waterways through our Local and Broadcast Notice to Mariners of the change in operating schedule for the bridge so that vessels can arrange their transits to minimize any impact caused by the temporary deviation.

In accordance with 33 CFR 117.35(e), the drawbridge must return to its regular operating schedule immediately at the end of the effective period of this temporary deviation. This deviation from the operating regulations is authorized under 33 CFR 117.35.

This document seeks comment on whether additional guidance, clarification, or modification regarding the “answered” and “ring no answer” categories of call attempts described in Appendix C of the Rural Call Completion Order is necessary. Appendix C provides a spreadsheet that covered providers must use to file the required call completion data with the Commission each quarter. This document seeks comment on whether Appendix C should be clarified to eliminate any basis for interpreting it inconsistently with the definition of “answered call” in the Order, and revise the description of “ring no answer” call attempts in Appendix C to provide clearer guidance to covered providers.

DATES:

Comments must be filed by May 13, 2014.

ADDRESSES:

You may submit comments, identified by WC Docket No. 13-39, by any of the following methods:

• Email ecfs@fcc.gov, and include the following words in the body of the message: “get form.” A sample form and directions will be sent in response. Include the docket numbers in the subject line of the message.

This is a summary of the Bureau's document in Rural Call Completion, FCC 13-135, published at 78 FR 76218, December 17, 2013. The complete text of this document is available on the Commission's Internet site at www.fcc.gov and for public inspection Monday through Thursday from 8 a.m. to 4:30 p.m. and Friday from 8 a.m. to 11:30 a.m. in the Commission's Consumer and Governmental Affairs Bureau Reference Information Center, Room CY-A257, 445 12th Street SW., Washington, DC 20554. The full text of this document may also be purchased from the Commission's duplicating contractor, Best Copy and Printing, Inc., Portals II, 445 12th Street SW., Washington, DC 20554, telephone 202-488-5300, facsimile 202-488-5563, email at fcc@bcpiweb.com, or via its Web site at http://www.bcpiweb.com.

Pursuant to sections 1.415 and 1.419 of the Commission's rules, 47 CFR 1.415, 1.419, interested parties may file comments and reply comments on or before the dates indicated on the first page of this document. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS). See Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24121 (1998).

• Electronic Filers: Comments may be filed electronically using the Internet by accessing the ECFS: http://fjallfoss.fcc.gov/ecfs2/.

• Paper Filers: Parties who choose to file by paper must file an original and one copy of each filing. If more than one docket or rulemaking number appears in the caption of this proceeding, filers must submit two additional copies for each additional docket or rulemaking number.

Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail. All filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission.

• All hand-delivered or messenger-delivered paper filings for the Commission's Secretary must be delivered to FCC Headquarters at 445 12th St. SW., Room TW-A325, Washington, DC 20554. The filing hours are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together with rubber bands or fasteners. Any envelopes and boxes must be disposed of before entering the building.

• Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743.

• U.S. Postal Service first-class, Express, and Priority mail must be addressed to 445 12th Street SW., Washington DC 20554.

People with Disabilities: To request materials in accessible formats for people with disabilities (braille, large print, electronic files, audio format), send an email to fcc504@fcc.gov or call the Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432 (tty).

Synopsis

The Wireline Competition Bureau seeks comment on whether guidance or additional clarification would assist providers with their filing obligations related to the Rural Call Completion Order, FCC 13-135, published at 78 FR 76218, December 17, 2013. Specifically, we seek comment on whether to modify or otherwise provide assistance regarding the criteria described in Appendix C of the Rural Call Completion Order for categorizing certain types of call attempts. We release this document in response to questions raised in the record regarding the “answered” and “ring no answer” categories of call attempts described in Appendix C, pursuant to delegated authority. These questions raise the possibility that the relevant criteria in Appendix C were inadvertently drafted in a way that fails to reflect the Commission's clear intent, as expressed in the Order.

“Answered” call attempts. The reporting requirements in the Rural Call Completion Order require covered providers to categorize call attempts either as “answered” or as one of three types of calls that are not answered: “busy,” “ring no answer,” or “unassigned number.” The Rural Call Completion Order defines “answered call” as

a call that was answered by or on behalf of the called party (including calls completed to devices, services or parties that answer the call such as an interactive voice response, answering service, voicemail or call-forwarding system), causing the network to register that the terminating party is prepared to receive information from the calling user.

The Commission emphasized that “the call answer rate is the data point least susceptible to variations in data reporting or to differences in the quality or accuracy of signaling: the called party either answered the call or did not answer the call.”

Appendix C of the Rural Call Completion Order provides a spreadsheet that covered providers must use to file the required call completion data with the Commission each quarter. The legend accompanying the spreadsheet identifies specific “ISUP Cause values and corresponding SIP Response messages” for each category of call attempt. An “answered” call is described in Appendix C as a call attempt “signaled back with ISUP 16 & 31 and SIP BYE & CANCEL.”

In recent meetings with Commission staff, Level 3 and Verizon explained that release cause code 16—one of the codes identified in Appendix C as denoting an answered call—is also used to indicate that the calling party has hung up before the called party answered. Level 3 contends that including calling-party hangups as answered calls would result in a “much higher” reported call-completion rate than a provider would report if it excluded them.

In this document, we seek comment on this contention and on whether it would assist providers if the Bureau clarified that, as specified in the Order, covered providers should record and report calls as “answered” only to the extent that such calls satisfy the definition of “answered call” that appears in paragraph 72 of the Rural Call Completion Order. Appendix C could be clarified to eliminate any basis for interpreting it inconsistently with the definition of “answered call” in the Order. If so, should the description of “answered call” in Appendix C be revised to include a different description (e.g., a different set of release codes) of how networks identify answered calls? Or should the legend in Appendix C simply be deleted, allowing each covered provider to identify answered calls in a manner consistent with the definition in the Rural Call Completion Order and with industry practice?

“Ring no answer” call attempts. The Rural Call Completion Order requires covered providers to record and report “ring no answer” call attempts, which are required to calculate the network effectiveness ratio (NER). A “ring no answer” call is described in Appendix C as a call attempt that is “signaled back with ISUP 18 & 19 and IP 408 & 480.”

Level 3 asserted that some of the criteria in Appendix C for “ring no answer” call attempts will only capture a very small percentage of the intended call attempts. Verizon expressed concern about using call signaling data to identify “ring no answer” calls at all. We therefore seek comment on whether the description of “ring no answer” call attempts in Appendix C should be revised to provide clearer guidance to covered providers, and if so, how. Alternatively, should the legend in Appendix C be deleted, allowing each covered provider to interpret the required call attempt categories in a manner consistent with industry practice and with the Commission's stated intent in the Rural Call Completion Order?

We, the U.S. Fish and Wildlife Service (Service), determine threatened species status under the Endangered Species Act of 1973 (Act), as amended, for Leavenworthia exigua var. laciniata (Kentucky glade cress), a plant species from Bullitt and Jefferson Counties, Kentucky. The effect of this regulation will be to add this species to the List of Endangered and Threatened Plants.

DATES:

This rule is effective June 5, 2014.

ADDRESSES:

This final rule is available on the Internet at http://www.regulations.gov. Comments and materials we received, as well as supporting documentation we used in preparing this rule, are available for public inspection at http://www.regulations.gov. All of the comments, materials, and documentation that we considered in this rulemaking are also available by appointment during normal business hours at: U.S. Fish and Wildlife Service, Kentucky Ecological Services Field Office, J.C. Watts Federal Building, 330 W. Broadway, Rm. 265, Frankfort, KY 40601; telephone 502-695-0468.

FOR FURTHER INFORMATION CONTACT:

Lee Andrews, Field Supervisor, U.S. Fish and Wildlife Service, Kentucky Ecological Services Field Office (see ADDRESSES above). Persons who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 800-877-8339.

Leavenworthia exigua var. laciniata is an annual member of the mustard family (Brassicaceae) known only from Bullitt and Jefferson Counties, Kentucky. The natural habitat for L. exigua var. laciniata is cedar or limestone glades (Baskin and Baskin 1981, p. 243), but the taxon is also known from overgrazed pastures, eroded shallow soil areas with exposed bedrock, and areas where the soil has been scraped off the underlying bedrock (Evans and Hannan 1990, p. 8). The plants grow to 5 to 10 centimeters (1.97 to 3.94 inches) in height with early leaves that are simple with a slender petiole (central stalk of the leaf) and mature leaves that are sharply lobed (appear as disconnected pieces along the main leaf vein), somewhat squarish at the ends, and arranged as a rosette (circular cluster of leaves) (Evans and Hannan 1990, p. 5). Please refer to the proposed listing rule for L. exigua var. laciniata (78 FR 31498; May 24, 2013) for a summary of species information.

Summary of Biological Status and Threats

Section 4 of the Act (16 U.S.C. 1533), and its implementing regulations at 50 CFR part 424, set forth the procedures for adding species to the Federal Lists of Endangered and Threatened Wildlife and Plants. Under section 4(a)(1) of the Act, we may list a species based on any of the following five factors: (A) The present or threatened destruction, modification, or curtailment of its habitat or range; (B) overutilization for commercial, recreational, scientific, or educational purposes; (C) disease or predation; (D) the inadequacy of existing regulatory mechanisms; and (E) other natural or manmade factors affecting its continued existence. Listing may be warranted based on any of the above threat factors, singly or in combination. Each of these factors is discussed below.

Summary of Factor A: The Present or Threatened Destruction, Modification, or Curtailment of Its Habitat or Range

Comprehensively, the loss and degradation of habitat represents the greatest threat to Leavenworthia exigua var. laciniata. Destruction and degradation of glades through development, roads, utilities, and conversion to lawns have resulted in fewer occurrences of L. exigua var. laciniata and reduced the quality of many of the remaining occurrences. Additional impacts of this nature are expected to continue far into the future as the human population within the range of L. exigua var. laciniata continues to grow. While the rate of development and associated activities will probably not reach the highs seen during the housing market bubble of the mid-2000s, it is expected to continue at a rate above the State average. As the Louisville metropolitan area continues to expand, undeveloped portions of southern Jefferson and northeastern Bullitt Counties will continue to be attractive to developers, and, consequently, residential and commercial development and its ancillary activities will continue. Documented impacts from horseback riding, off-road vehicle use, and changes in grazing practices have resulted in the loss or degradation of several L. exigua var. laciniata occurrences. These activities are expected to continue in the future but to an unknown extent. Forest encroachment is expected to continue in areas without active management. A few voluntary conservation measures are in place on properties owned by private individuals, or State or local government, that reduce threats to specific L. exigua var. laciniata occurrences, but to date, none of these has resulted in any measurements of success or assurances that these activities will continue into the future. Climate change has the potential to impact this species, but to what extent we cannot predict.

We have no information to suggest that Leavenworthia exigua var. laciniata is currently collected for commercial, recreational, or educational purposes. The Service will coordinate with any agency or university studying L. exigua var. laciniata to ensure that future collections will not significantly contribute to the decline of the species. Accordingly, we have no reason to believe that this factor will become a threat to the species in the future.

Summary of Factor C: Disease or Predation

There is no available information regarding disease in Leavenworthia exigua var. laciniata. Furthermore, we have not identified any information regarding animal (wild or domestic) predation on L. exigua var. laciniata. Field observations by the Kentucky State Nature Preserves Commission (KSNPC) during extensive surveys of this species indicate that neither disease nor predation is a factor contributing to the decline of the species at this time (Evans and Hannan 1990, p. 12; White, pers. comm., 2012).

Summary of Factor D: The Inadequacy of Existing Regulatory Mechanisms

Other than the Act (16 U.S.C. 1531 et seq.), we are not aware of any State or Federal statutes or regulations that would provide protections to Leavenworthia exigua var. laciniata. The Kentucky Rare Plants Recognition Act (Kentucky Revised Statutes, chapter 146, sections 600-619) directs the KSNPC to identify plants native to Kentucky that are in danger of extirpation within Kentucky and report every 4 years to the Governor and General Assembly on the conditions and needs of these endangered or threatened plants. We determined that this statute does not include any regulatory prohibitions of activities or direct protections for any identified species. The intent of this statute is not to ameliorate the threats identified for the species, but it does provide information on the species.

Summary of Factor E: Other Natural or Manmade Factors Affecting Its Continued Existence

Leavenworthia exigua var. laciniata is subject to several ongoing natural and manmade factors that could affect its continued existence. The species has a narrow range, occurring in only small portions of two counties. Within this range, L. exigua var. laciniata is restricted to cedar glades and similar shallow-soiled areas that occur sporadically across the range. More than half of the remaining occurrences had low (fewer than 100 individuals) population counts at the time of the most recent survey. Additionally, the presumed low genetic diversity within individual occurrences of L. exigua var. laciniata could place those occurrences at a high risk of extirpation as their capacity for adaptation to change is reduced.

Please refer to Summary of Factors Affecting the Species section of the species status assessment (78 FR 31498; May 24, 2013) for a more detailed discussion of the factors affecting L. exigua var. laciniata. Our assessment evaluated the biological status of the species and threats affecting its continued existence. The assessment was based upon the best available scientific and commercial data and the expert opinion of the species status assessment team members.

Summary of Comments and Recommendations

In the proposed rule published on May 24, 2013 (78 FR 31498), we requested that all interested parties submit written comments on the proposal on or before July 23, 2013. We also contacted appropriate Federal and State agencies, scientific experts and organizations, and other interested parties and invited them to comment on the proposal. Newspaper notices inviting general public comment were published in the Louisville Courier Journal and the Pioneer News. We did not receive any requests for a public hearing. All substantive information provided during comment periods has either been incorporated directly into this final determination or addressed below.

Peer Reviewer Comments

In accordance with our peer review policy published on July 1, 1994 (59 FR 34270), we solicited expert opinion from seven knowledgeable individuals with scientific expertise that included familiarity with Leavenworthia exigua var. laciniata and its habitat, biological needs, and threats. We received responses from three of the peer reviewers.

We reviewed all comments we received from the peer reviewers for substantive issues and new information regarding the listing of L. exigua var. laciniata. The peer reviewers generally concurred with our methods and conclusions, and provided additional information, clarifications, and suggestions to improve this final rule. Peer reviewer comments are addressed in the following summary and incorporated into the final rule as appropriate.

(1) Comment: One peer reviewer recommended that within the Biology section, where we describe the changes that L. exigua var. laciniata seed undergo during the summer, we change the word “physical” to “physiological.”

Our Response: We appreciate the recommendation and have updated the Biology section to reflect this change.

(2) Comment: One peer reviewer questioned the statement in the section on Current Range/Distribution that very little remaining glade habitat within the species' range has not been surveyed. This peer reviewer asked if we had intended to state that little habitat had been surveyed.

Our Response: We intended to state that very little glade habitat remains within the species' range that has not been surveyed. Over the last 20 years, KSNPC has systematically used aerial photography and known geology to identify potential L. exigua var. laciniata glade habitat with the intent of identifying new populations within the known range and exploring potential areas to expand the known habitat. Very little potential habitat, i.e., cedar or limestone glades, the only habitat known for this species, has not been surveyed. Also, this part of the State is heavily explored because it is so populated and accessible; therefore, discovering any additional habitat for this species is very unlikely (D. White, pers. comm., 2012).

(3) Comment: One peer reviewer stated that it is not clear in our discussion of significant landownerships whether the species is actually present at the locations identified.

Our Response: Table 3 of the proposed rule (78 FR 31498; May 24, 2013) summarizes the ownership areas and includes the most recent population data for L. exigua var. laciniata in those areas.

Comments From States

The Commonwealth of Kentucky did not submit comments. We note, however, that one of the peer reviewers was from KSNPC. Those comments are addressed above.

Public Comments

During the public comment period, we received two comment letters directly addressing the proposed listing. These letters also addressed the proposed critical habitat designation. Comments pertaining to the critical habitat designation are addressed in that final rule, published elsewhere in today's Federal Register. Both comment letters received regarding the proposed listing were positive and in support of the proposed listing.

(4) Comment: One commenter provided information regarding recent infrastructure improvements (water line extensions, new sewer pump station) that would encourage expanded development within the range of L. exigua var. laciniata.

Our Response: We appreciate the supporting information.

(5) Comment: One commenter stated that more locations of L. exigua var. laciniata will be identified.

Our Response: We agree that it is likely that the plant will be found in more locations as survey efforts increase. Intense efforts on the ground and via aerial imagery have already been conducted to identify and explore potential cedar glade habitats. We will evaluate new information as it becomes available to determine if it results in any significant expansion of the species' range or a significant increase in extant occurrences.

(6) Comment: One commenter provided information on a possible L. exigua var. laciniata occurrence in the vicinity of Chenoweth Run Creek and Seatonville Road and voiced concerns about future impacts that could affect the species at this location.

Our Response: We are not aware of any L. exigua var. laciniata occurrences at this location but will carefully evaluate any proposed projects that we review in this area, or for any proposed projects within the range of the species, for potential impacts to the species or its habitat.

(7) Comment: One commenter asked if the limestone quarry in Bullitt County could be affecting the habitat of L. exigua var. laciniata.

Our Response: We have no data to suggest that the quarry has impacted L. exigua var. laciniata or its habitat. There are no known historical or extant L. exigua var. laciniata populations known to occur at the quarry.

(8) Comment: One commenter recommended seed collection as an important way to ensure the survival of the species.

Our Response: Some seed collection for this species has already occurred, as we discussed under the Factor B analysis in the proposed rule. The use of seed collection as a possible tool for recovering this species will be considered during the development of the recovery plan for L. exigua var. laciniata.

Summary of Changes From Proposed Rule

Other than minor changes in response to recommendations, in this final rule we made no substantial changes to the proposed rule.

Determination

Section 4 of the Act (16 U.S.C. 1533), and its implementing regulations at 50 CFR part 424, set forth the procedures for adding species to the Federal Lists of Endangered and Threatened Wildlife and Plants. Under section 4(a)(1) of the Act, we may list a species based on (A) The present or threatened destruction, modification, or curtailment of its habitat or range; (B) overutilization for commercial, recreational, scientific, or educational purposes; (C) disease or predation; (D) the inadequacy of existing regulatory mechanisms; or (E) other natural or manmade factors affecting its continued existence. Listing actions may be warranted based on any of the above threat factors, singly or in combination.

We have carefully assessed the best scientific and commercial information available regarding the past, present, and future threats to Leavenworthia exigua var. laciniata. The most significant threats to the species are described under Factors A (the present or threatened destruction, modification, or curtailment of its habitat or range) and E (other natural or manmade factors affecting its continued existence). Specifically, destruction and degradation of glade habitat through development, roads, utilities, and conversion to lawns has resulted in fewer occurrences of L. exigua var. laciniata and reduced the quality of many of the remaining occurrences. Additional impacts of this nature are expected to continue for the foreseeable future as the human population within the range of L. exigua var. laciniata continues to grow. Within the narrow (small portions of two Kentucky counties) range, L. exigua var. laciniata is restricted to cedar glades and similar shallow-soiled areas, which occur sporadically across the range. The presumed low genetic diversity within individual occurrences of L. exigua var. laciniata could place those occurrences at a high risk as their capacity for adaptation to change is reduced. These threats occur across the taxon's range and are ongoing and, therefore, imminent.

The Act defines an endangered species as any species that is “in danger of extinction throughout all or a significant portion of its range” and a threatened species as any species “that is likely to become endangered throughout all or a significant portion of its range within the foreseeable future.” Although we recognize that the threats to the species are ongoing, often severe, and occurring throughout the species' range, we find that an endangered species status is not appropriate for Leavenworthia exigua var. laciniata because the possibility that all occurrences of the species would be equally impacted in the foreseeable future, thus resulting in extinction, is unlikely. However, we find that L. exigua var. laciniata is likely to become endangered throughout all or a significant portion of its range within the foreseeable future based on the severity and immediacy of threats currently impacting the species.

Under the Act and our implementing regulations, a species may warrant listing if it is endangered or threatened throughout all or a significant portion of its range. As stated above, the threats to the survival of the species occur throughout the species' range and are not restricted to any particular significant portion of that range. Accordingly, our assessment and determination applies to the species throughout its range.

Significant Portion of the Range

The Act defines an endangered species as any species that is “in danger of extinction throughout all or a significant portion of its range” and a threatened species as any species “that is likely to become endangered throughout all or a significant portion of its range within the foreseeable future.” A major part of the analysis of “significant portion of the range” requires considering whether the threats to the species are geographically concentrated in any way. If the threats are essentially uniform throughout the species' range, then no portion is likely to warrant further consideration.

We have carefully considered all scientific and commercial information available regarding the past, present, and future threats to L. exigua var. laciniata. L. exigua var. laciniata, proposed for listing in this rule, occurs only in portions of two Kentucky counties and the threats to the survival of the taxon are not restricted to any particular significant portion of that range. Accordingly, our assessment and determination applies to the taxon throughout its entire range. We find that L. exigua var. laciniata is likely, within the foreseeable future, to become an endangered species throughout its entire range, based on the immediacy, severity, and scope of the threats described above. We are listing L. exigua var. laciniata as threatened in accordance with sections 3(6) and 4(a)(1) of the Act.

Available Conservation Measures

Conservation measures provided to species listed as endangered or threatened under the Act include recognition, recovery actions, requirements for Federal protection, and prohibitions against certain practices. The Act encourages cooperation with the States and requires that recovery actions be carried out for all listed species. The protection required by Federal agencies and the prohibitions against certain activities are discussed, in part, below.

The primary purpose of the Act is the conservation of endangered and threatened species and the ecosystems upon which they depend. The ultimate goal of such conservation efforts is the recovery of these listed species, so that they no longer need the protective measures of the Act. Subsection 4(f) of the Act requires the Service to develop and implement recovery plans for the conservation of endangered and threatened species. The recovery planning process involves the identification of actions that are necessary to halt or reverse the species' decline by addressing the threats to its survival and recovery. The goal of this process is to restore listed species to a point where they are secure, self-sustaining, and functioning components of their ecosystems.

Recovery planning includes the development of a recovery outline shortly after a species is listed and preparation of a draft and final recovery plan. The recovery outline guides the immediate implementation of urgent recovery actions and describes the process to be used to develop a recovery plan. Revisions of the plan may be done to address continuing or new threats to the species, as new substantive information becomes available. The recovery plan identifies site-specific management actions that set a trigger for review of the five factors that control whether a species remains endangered or may be downlisted or delisted, and methods for monitoring recovery progress. Recovery plans also establish a framework for agencies to coordinate their recovery efforts and provide estimates of the cost of implementing recovery tasks. Recovery teams (composed of species experts, Federal and State agencies, nongovernmental organizations, and stakeholders) are often established to develop recovery plans. When completed, the recovery outline, draft recovery plan, and the final recovery plan will be available on our Web site (http://www.fws.gov/endangered), or from our Kentucky Ecological Services Field Office (see FOR FURTHER INFORMATION CONTACT).

Implementation of recovery actions generally requires the participation of a broad range of partners, including other Federal agencies, States, Tribal, nongovernmental organizations, businesses, and private landowners. Examples of recovery actions include habitat restoration (e.g., restoration of native vegetation), research, captive propagation and reintroduction, and outreach and education. The recovery of many listed species cannot be accomplished solely on Federal lands because their range may occur primarily or solely on non-Federal lands. To achieve recovery of these species requires cooperative conservation efforts on private, State, and Tribal lands.

When this species is listed (see DATES), funding for recovery actions will be available from a variety of sources, including Federal budgets, State programs, and cost share grants for non-Federal landowners, the academic community, and nongovernmental organizations. In addition, pursuant to section 6 of the Act, the Commonwealth of Kentucky will be eligible for Federal funds to implement management actions that promote the protection or recovery of L. exigua var. laciniata. Information on our grant programs that are available to aid species recovery can be found at: http://www.fws.gov/grants.

Please let us know if you are interested in participating in recovery efforts for the L. exigua var. laciniata. Additionally, we invite you to submit any new information on this species whenever it becomes available and any information you may have for recovery planning purposes (see FOR FURTHER INFORMATION CONTACT).

Section 7(a) of the Act requires Federal agencies to evaluate their actions with respect to any species that is proposed or listed as an endangered or threatened species and with respect to its critical habitat, if any is designated. Regulations implementing this interagency cooperation provision of the Act are codified at 50 CFR part 402. Section 7(a)(4) of the Act requires Federal agencies to confer with the Service on any action that is likely to jeopardize the continued existence of a species proposed for listing or result in destruction or adverse modification of proposed critical habitat. If a species is listed subsequently, section 7(a)(2) of the Act requires Federal agencies to ensure that activities they authorize, fund, or carry out are not likely to jeopardize the continued existence of the species or destroy or adversely modify its critical habitat. If a Federal action may affect a listed species or its critical habitat, the responsible Federal agency must enter into consultation with the Service.

Federal agency actions within the species' habitat that may require conference or consultation or both as described in the preceding paragraph include issuance of Federal permits under section 404 Clean Water Act (33 U.S.C. 1251 et seq.) by the U.S. Army Corps of Engineers; construction and management of gas pipeline and power line rights-of-way by the Federal Energy Regulatory Commission; and construction and maintenance of roads or highways by the Federal Highway Administration.

With respect to threatened plants, 50 CFR 17.71 provides that all of the provisions in 50 CFR 17.61 shall apply to threatened plants. These provisions make it illegal for any person subject to the jurisdiction of the United States to import or export, transport in interstate or foreign commerce in the course of a commercial activity, sell or offer for sale in interstate or foreign commerce, or to remove and reduce to possession any such plant species from areas under Federal jurisdiction. In addition, the Act prohibits malicious damage or destruction of any such species on any area under Federal jurisdiction, and the removal, cutting, digging up, or damaging or destroying of any such species on any other area in knowing violation of any State law or regulation, or in the course of any violation of a State criminal trespass law. However, there is the following exception for threatened plants. Seeds of cultivated specimens of species treated as threatened shall be exempt from all the provisions of 50 CFR 17.61, provided that a statement that the seeds are of “cultivated origin” accompanies the seeds or their container during the course of any activity otherwise subject to these regulations. Exceptions to these prohibitions are outlined in 50 CFR 17.72.

We may issue permits to carry out otherwise prohibited activities involving threatened plants under certain circumstances. Regulations governing permits are codified at 50 CFR 17.72. With regard to threatened plants, a permit issued under this section must be for one of the following: Scientific purposes, the enhancement of the propagation or survival of threatened species, economic hardship, botanical or horticultural exhibition, educational purposes, or other activities consistent with the purposes and policy of the Act.

Under section 4(d) of the Act, the Secretary has discretion to issue such regulations as she deems necessary and advisable to provide for the conservation of threatened species. Our implementing regulations (50 CFR 17.71) for threatened plants generally incorporate the prohibitions of section 9 of the Act for endangered plants, except when a rule promulgated pursuant to section 4(d) of the Act has been issued with respect to a particular threatened species. In such a case, the general prohibitions in 50 CFR 17.61 would not apply to that species, and instead, the special rule would define the specific take prohibitions and exceptions that would apply for that particular threatened species, which we consider necessary and advisable to conserve the species. With respect to a threatened plant, the Secretary of the Interior also has the discretion to prohibit by regulation any act prohibited by section 9(a)(2) of the Act. Exercising this discretion, which has been delegated to the Service by the Secretary, the Service has developed general prohibitions that are appropriate for most threatened species at 50 CFR 17.71 and exceptions to those prohibitions at 50 CFR 17.72. We have determined to not promulgate a rule under section 4(d) of the Act, and as a result, all of the section 9(a)(2) general prohibitions, including the “take” prohibitions, will apply to the L. exigua var. laciniata.

It is our policy, as published in the Federal Register on July 1, 1994 (59 FR 34272), to identify to the maximum extent practicable at the time a species is listed, those activities that would or would not constitute a violation of section 9 of the Act. The intent of this policy is to increase public awareness of the effect of a listing on proposed and ongoing activities within the range of listed species. Based on the best available information, the following actions are unlikely to result in a violation of section 9, if these activities are carried out in accordance with existing regulations and permit requirements:

(1) Normal agricultural and silvicultural practices, including herbicide and pesticide use, which are carried out in accordance with any existing regulations, permit and label requirements, and best management practices; and,

(2) Normal residential landscape activities.

Based on the best available information, the following activities may potentially result in a violation of section 9 the Act; this list is not comprehensive:

Unauthorized collecting, handling, possessing, selling, delivering, carrying, or transporting of the species, including import or export across State lines and international boundaries, except for properly documented antique specimens of these taxa at least 100 years old, as defined by section 10(h)(1) of the Act.

Questions regarding whether specific activities would constitute a violation of section 9 of the Act should be directed to the Kentucky Ecological Services Field Office (see FOR FURTHER INFORMATION CONTACT). Requests for copies of the regulations concerning listed plants and general inquiries regarding prohibitions and permits may be addressed to the U.S. Fish and Wildlife Service, Ecological Services Division, 1875 Century Boulevard, Atlanta, GA 30345 (Phone 404/679-7313; Fax 404/679-7081).

We have determined that environmental assessments and environmental impact statements, as defined under the authority of the NEPA, need not be prepared in connection with listing a species as an endangered or threatened species under the Act. We published a notice outlining our reasons for this determination in the Federal Register on October 25, 1983 (48 FR 49244).

Government-to-Government Relationship With Tribes

In accordance with the President's memorandum of April 29, 1994 (Government-to-Government Relations with Native American Tribal Governments; 59 FR 22951), Executive Order 13175 (Consultation and Coordination With Indian Tribal Governments), and the Department of the Interior's manual at 512 DM 2, we readily acknowledge our responsibility to communicate meaningfully with recognized Federal Tribes on a government-to-government basis. In accordance with Secretarial Order 3206 of June 5, 1997 (American Indian Tribal Rights, Federal-Tribal Trust Responsibilities, and the Endangered Species Act), we readily acknowledge our responsibilities to work directly with tribes in developing programs for healthy ecosystems, to acknowledge that tribal lands are not subject to the same controls as Federal public lands, to remain sensitive to Indian culture, and to make information available to tribes.

References Cited

A complete list of references cited in this rulemaking is available on the Internet at http://www.regulations.gov under Docket No. FWS-R4-ES-2013-0069 and upon request from the Kentucky Ecological Services Field Office (see FOR FURTHER INFORMATION CONTACT).

Authors

The primary authors of this final rule are the staff members of the Kentucky Ecological Services Field Office.

Accordingly, we amend part 17, subchapter B of chapter I, title 50 of the Code of Federal Regulations, as follows:

PART 17—[AMENDED]1. The authority citation for part 17 continues to read as follows:Authority:

16 U.S.C. 1361-1407; 1531-1544; 4201-4245, unless otherwise noted.

2. In § 17.12(h), add an entry for “Leavenworthia exigua var. laciniata” in alphabetical order under FLOWERING PLANTS to the List of Endangered and Threatened Plants to read as follows:§ 17.12 Endangered and threatened plants.

We, the U.S. Fish and Wildlife Service (Service), designate critical habitat for Leavenworthia exigua var. laciniata (Kentucky glade cress) under the Endangered Species Act (Act). In total, approximately 2,053 acres (830 hectares) in Bullitt and Jefferson Counties, Kentucky, fall within the boundaries of the critical habitat designation.

DATES:

This rule is effective on June 5, 2014.

ADDRESSES:

This final rule is available on the Internet at http://www.regulations.gov. Comments and materials we received, as well as some supporting documentation we used in preparing this rule, are available for public inspection at http://www.regulations.gov. All of the comments, materials, and documentation that we considered in this rulemaking are available by appointment, during normal business hours at: U.S. Fish and Wildlife Service, Kentucky Ecological Services Field Office, J.C. Watts Federal Building, 330 W. Broadway, Rm. 265, Frankfort, KY 40601; telephone 502-695-0468.

The coordinates or plot points or both from which the maps are generated are included in the administrative record for this critical habitat designation and are available at http://www.regulations.gov at Docket No. FWS-R4-ES-2013-0015. Any additional tools or supporting information that we developed for this critical habitat designation will also be available at the Fish and Wildlife Service Web site and Field Office set out above, and at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT:

Lee Andrews, Field Supervisor, U.S. Fish and Wildlife Service, Kentucky Ecological Services Field Office, (see ADDRESSES above). Persons who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 800-877-8339.

SUPPLEMENTARY INFORMATION:Executive Summary

Why we need to publish a rule. Under the Endangered Species Act of 1973, as amended (Act), when we determine that a species is endangered or threatened we must designate critical habitat to the maximum extent prudent and determinable. Designations of critical habitat can only be completed by issuing a rule. Section 4(b)(2) of the Act states that the Secretary shall designate critical habitat on the basis of the best available scientific data after taking into consideration the economic impact, national security impact, and any other relevant impact of specifying any particular area as critical habitat. The critical habitat areas we are designating in this rule constitute our current best assessment of the areas that meet the definition of critical habitat for Leavenworthia exigua var. laciniata.

This rule consists of: A final rule for designation of critical habitat for L. exigua var. laciniata. We are designating approximately 2,053 acres (830 hectares) of critical habitat for L. exigua var. laciniata in Bullitt and Jefferson Counties, Kentucky. Elsewhere in today's Federal Register, we published a final rule listing L. exigua var. laciniata as a threatened species.

We have prepared an economic analysis of the designation of critical habitat. We prepared an analysis of the economic impacts of the critical habitat designation and related factors. We announced the availability of the draft economic analysis in the Federal Register on January 7, 2014 (79 FR 796), allowing the public to provide comments on our analysis. We have incorporated the comments and have completed a final economic analysis concurrently with this final determination.

Peer review and public comment. We sought comments from seven independent specialists to review our technical assumptions and analysis, and whether or not we used the best information, to ensure that this designation of critical habitat is based on scientifically sound data and analyses. We obtained opinions from three of those individuals. These peer reviewers generally concurred with our methods and conclusions. We also considered all comments and information we received from the public during the comment period.

Previous Federal Actions

Please refer to the proposed listing rule for Leavenworthia exigua var. laciniata (78 FR 31498; May 24, 2013) for a detailed description of previous Federal actions concerning this species. On May 24, 2013, we proposed critical habitat for L. exigua var. laciniata (78 FR 31479). On January 7, 2014 (79 FR 796), we announced the availability of the draft economic analysis (DEA) for the proposed critical habitat designation, and reopened the public comment period to allow comment on the DEA and further comment on the proposed rule.

Summary of Comments and Recommendations

We requested written comments from the public on the proposed designation of critical habitat for L. exigua var. laciniata during two comment periods. The first comment period opened with the publication of the proposed rule (78 FR 31479) on May 24, 2013, and closed on July 23, 2013. We also requested comments on the proposed critical habitat designation and associated draft economic analysis during a comment period that opened January 7, 2014, and closed on February 6, 2014 (79 FR 796). We did not receive any requests for a public hearing. We also contacted appropriate Federal, State, and local agencies; scientific organizations; and other interested parties, and invited them to comment on the proposed rule and draft economic analysis during these comment periods.

During the first comment period, we received two comment letters directly addressing the proposed critical habitat designation. During the second comment period, we received no comment letters addressing the proposed critical habitat designation or the draft economic analysis. All substantive information provided during the comment periods has either been incorporated directly into this final determination or is addressed below.

Peer Review

In accordance with our peer review policy published on July 1, 1994 (59 FR 34270), we solicited expert opinions from seven knowledgeable individuals with scientific expertise that included familiarity with the species, the geographic region in which the species occurs, and conservation biology principles. We received responses from three of the peer reviewers.

We reviewed all comments we received from the peer reviewers for substantive issues and new information regarding critical habitat for L. exigua var. laciniata. Although the peer reviewers were supportive of the proposed critical habitat designation, they did not provide any additional information, clarifications, or suggestions to improve this final critical habitat rule.

Comments From States

The Commonwealth of Kentucky did not submit comments on the proposed rule. We note, however, that one of the peer reviewers was from the Kentucky State Nature Preserves Commission (KSNPC).

Public Comments

During the public comment periods, we received two comment letters directly addressing the proposed critical habitat. These letters also addressed the proposed listing; comments pertaining to the listing are addressed in that final rule, published elsewhere in today's Federal Register. Both comment letters we received regarding the proposed critical habitat were positive and in support of the proposed designation.

(1) Comment: One commenter noted that proposed subunits 4D and 4E are found along Bardstown Road in an area of high traffic and increasing commercial development.

Our Response: We acknowledge that additional development in the area of subunits 4D and 4E has the potential to impact L. exigua var. laciniata and its habitat. Section 7 of the Act (16 U.S.C. 1531 et seq.) requires Federal agencies, in consultation with the Service, to ensure that any action authorized, funded, or carried out by a Federal agency (thereby constituting a Federal nexus) is not likely to result in the destruction or adverse modification of critical habitat. If there is no Federal nexus for a given action, then critical habitat designation, including on private land, does not restrict any actions that destroy or adversely modify critical habitat. The Service will provide technical assistance to avoid and minimize impacts to L. exigua var. laciniata's critical habitat if such assistance is requested.

(2) Comment: The Service should take into consideration the economic benefits of conserving the State's natural heritage.

Our Response: As required by Executive Order (E.O.) 12866 and section 4(b)(2) of the Act, the Service has completed an economic analysis on the effects of the critical habitat designation. The findings of this analysis were published in the Federal Register (79 FR 796; January 7, 2014). While the Service recognizes that there will be benefits associated with designating critical habitat for this species, we are unable to assess the magnitude of these benefits due to existing data limitations.

Summary of Changes From Proposed Rule

Information we received during the comment periods did not result in any substantial changes to this final rule from what we proposed.

Critical HabitatBackground

Critical habitat is defined in section 3 of the Act as:

(1) The specific areas within the geographical area occupied by the species, at the time it is listed in accordance with the Act, on which are found those physical or biological features

(a) Essential to the conservation of the species, and

(b) Which may require special management considerations or protection; and

(2) Specific areas outside the geographical area occupied by the species at the time it is listed, upon a determination that such areas are essential for the conservation of the species.

Conservation, as defined under section 3 of the Act, means to use and the use of all methods and procedures that are necessary to bring an endangered or threatened species to the point at which the measures provided pursuant to the Act are no longer necessary. Such methods and procedures include, but are not limited to, all activities associated with scientific resources management such as research, census, law enforcement, habitat acquisition and maintenance, propagation, live trapping, and transplantation, and, in the extraordinary case where population pressures within a given ecosystem cannot be otherwise relieved, may include regulated taking.

Critical habitat receives protection under section 7 of the Act through the requirement that Federal agencies ensure, in consultation with the Service, that any action they authorize, fund, or carry out is not likely to result in the destruction or adverse modification of critical habitat. The designation of critical habitat does not affect land ownership or establish a refuge, wilderness, reserve, preserve, or other conservation area. Such designation does not allow the government or public to access private lands. Such designation does not require implementation of restoration, recovery, or enhancement measures by non-Federal landowners. Where a landowner requests Federal agency funding or authorization for an action that may affect a listed species or critical habitat, the consultation requirements of section 7(a)(2) of the Act would apply, but even in the event of a destruction or adverse modification finding, the obligation of the Federal action agency and the landowner is not to restore or recover the species, but to implement reasonable and prudent alternatives to avoid destruction or adverse modification of critical habitat.

Under the first prong of the Act's definition of critical habitat, areas within the geographical area occupied by the species at the time it was listed are included in a critical habitat designation if they contain physical or biological features (1) which are essential to the conservation of the species and (2) which may require special management considerations or protection. For these areas, critical habitat designations identify, to the extent known using the best scientific and commercial data available, those physical or biological features that are essential to the conservation of the species (such as space, food, cover, and protected habitat). In identifying those physical or biological features within an area, we focus on the principal biological or physical constituent elements (primary constituent elements such as roost sites, nesting grounds, seasonal wetlands, water quality, tide, soil type) that are essential to the conservation of the species. Primary constituent elements are those specific elements of the physical or biological features that provide for a species' life-history processes and are essential to the conservation of the species.

Under the second prong of the Act's definition of critical habitat, we can designate critical habitat in areas outside the geographical area occupied by the species at the time it is listed, upon a determination that such areas are essential for the conservation of the species. For example, an area currently occupied by the species but that was not occupied at the time of listing may be essential to the conservation of the species and may be included in the critical habitat designation. We designate critical habitat in areas outside the geographical area occupied by a species only when a designation limited to its range would be inadequate to ensure the conservation of the species.

Section 4 of the Act requires that we designate critical habitat on the basis of the best scientific and commercial data available. Further, our Policy on Information Standards Under the Endangered Species Act (published in the Federal Register on July 1, 1994 (59 FR 34271)), the Information Quality Act (section 515 of the Treasury and General Government Appropriations Act for Fiscal Year 2001 (Pub. L. 106-554; H.R. 5658)), and our associated Information Quality Guidelines provide criteria, establish procedures, and provide guidance to ensure that our decisions are based on the best scientific data available. They require our biologists, to the extent consistent with the Act and with the use of the best scientific data available, to use primary and original sources of information as the basis for recommendations to designate critical habitat.

When we are determining which areas should be designated as critical habitat, our primary source of information is generally the information developed during the listing process for the species. Additional information sources may include the recovery plan for the species, articles in peer-reviewed journals, conservation plans developed by States and counties, scientific status surveys and studies, biological assessments, other unpublished materials, or experts' opinions or personal knowledge.

Habitat is dynamic, and species may move from one area to another over time. We recognize that critical habitat designated at a particular point in time may not include all of the habitat areas that we may later determine are necessary for the recovery of the species. For these reasons, a critical habitat designation does not signal that habitat outside the designated area is unimportant or may not be needed for recovery of the species. Areas that are important to the conservation of the species, both inside and outside the critical habitat designation, will continue to be subject to: (1) Conservation actions implemented under section 7(a)(1) of the Act, (2) regulatory protections afforded by the requirement in section 7(a)(2) of the Act for Federal agencies to insure their actions are not likely to jeopardize the continued existence of any endangered or threatened species, and (3) section 9 of the Act's prohibitions on taking any individual of the species, including taking caused by actions that affect habitat. Federally funded or permitted projects affecting listed species outside their designated critical habitat areas may still result in jeopardy findings in some cases. These protections and conservation tools will continue to contribute to recovery of this species. Similarly, critical habitat designations made on the basis of the best available information at the time of designation will not control the direction and substance of future recovery plans, habitat conservation plans (HCPs), or other species conservation planning efforts if new information available at the time of these planning efforts calls for a different outcome.

Physical or Biological Features

In accordance with section 3(5)(A)(i) and 4(b)(1)(A) of the Act and regulations at 50 CFR 424.12, in determining which areas within the geographical area occupied by the species at the time of listing to designate as critical habitat, we consider the physical or biological features essential to the conservation of the species and which may require special management considerations or protection. These include, but are not limited to:

(1) Space for individual and population growth and for normal behavior;

(4) Sites for breeding, reproduction, or rearing (or development) of offspring; and

(5) Habitats that are protected from disturbance or are representative of the historical, geographical, and ecological distributions of a species.

We derive the specific physical or biological features essential for L. exigua var. laciniata from studies of this species' habitat, ecology, and life history as described in the Critical Habitat section of the proposed rule to designate critical habitat published in the Federal Register on May 24, 2013 (78 FR 31479), and in the information presented below. Additional information can be found in the final listing rule published elsewhere in today's Federal Register. We have determined that the following physical and biological features are essential for L. exigua var. laciniata.

Space for Individual and Population Growth and for Normal Behavior

Leavenworthia exigua var. laciniata is typically found in cedar or limestone glades (Baskin and Baskin 1981, p. 243), which are described by Baskin and Baskin (1999, p. 206) as “open areas of rock pavement, gravel, flagstone, and/or shallow soil in which occur natural, long-persisting (edaphic climax) plant communities dominated by angiosperms and/or cryptogams.” L. exigua var. laciniata is also known from gladelike areas such as overgrazed pastures, eroded shallow soil areas with exposed bedrock, and areas where the soil has been scraped off the underlying bedrock (Evans and Hannan 1990, p. 8). These disturbed areas are gladelike in the shallowness or near-absence of their soils, saturation, and/or inundation during the wet periods of late fall, winter, and early spring and then frequently dry below the permanent wilting point during the summer (Baskin and Baskin 2003, p. 101). These conditions likely prevent species that would shade or compete with L. exigua var. laciniata from establishing in these areas.

While the individual rock exposure or outcrop areas will vary in size and may be small and scattered throughout the glade(s) or gladelike area(s), they will ideally occur in groups to comprise a glade (or gladelike) complex. Habitat destruction, modification, and fragmentation within the narrow range of L. exigua var. laciniata make it difficult to determine the optimal size or density of glade habitats needed to support the long-term survival of the species. Pine Creek Barrens Preserve (owned by The Nature Conservancy) contains the only remaining A-ranked population of L. exigua var. laciniata, described as having thousands of plants scattered over 25 to 30 acres. Similarly, the B-ranked Rocky Run was described in 1990 as containing thousands of plants scattered over 2 miles. Many of the poor (D) ranked populations occur within areas as small as a few square meters (KSNPC 2012, pp. 1-108). While the long-term viability of these populations is considered poor, monitoring efforts have shown that for the short term, some L. exigua var. laciniata populations are able to persist (i.e., grow and reproduce) on these small and fragmented sites.

Based on the information above, we identify cedar glades and gladelike areas underlain by Silurian dolomite or dolomitic limestone as an essential physical or biological feature for the species.

The specific water needs of L. exigua var. laciniata are unknown; however, the sites it occupies are extremely wet from late winter to early spring and quickly become dry in late May and June. This hydrologic regime is critical for the plant's survival in that it provides sufficient moisture for the taxon's life cycle (germination in fall, plant growth from fall to early spring, and seed production in the spring). Additionally, the droughty conditions during the typical growing season prevent the establishment of plants that could shade or dominate L. exigua var. laciniata.

L. exigua var. laciniata is shade intolerant. Open glade habitats appear to provide the most favorable conditions for this species (Evans and Hannan 1990, p. 14). Baskin and Baskin (1988, p. 834) noted that most endemics occurring on rock outcrops (such as L. exigua var. laciniata) are restricted to the open and well-lighted areas of the outcrops as opposed to similar but more shaded areas near the surrounding forest.

L. exigua var. laciniata seems more dependent upon the lack of soil and the proximity of rock near or at the surface rather than a specific type of soil (Evans and Hannan 1990, p. 8). It occurs primarily in open, gravelly soils around rock outcrops in an area of the Caneyville-Crider soil association (Whitaker and Waters 1986, p. 16). Baskin and Baskin (1981, p. 245) identified shallow soils (1 to 5 centimeters (cm)) (0.39 to 1.97 inches (in)) over limestone or dolomite to be characteristic habitat of L. exigua var. laciniata.

Based on this information, we identify unshaded and shallow soils that are extremely wet from late winter to early spring and quickly become dry in late May and June to be an essential physical or biological feature for this species.

Like all annuals, L. exigua var. laciniata reproduces sexually through seed production. Successful reproduction of L. exigua var. laciniata requires sufficient moisture for germination, growth, flowering, and seed production. Pollination of L. exigua var. laciniata can be by insects or self-pollination (Rollins 1963, p. 47). Seeds may fall to the ground, be transported by animals, or be carried by precipitation sheet flow to new sites.

The seeds of L. exigua var. laciniata germinate in the fall, with plants surviving through the winter as rosettes that flower in early spring. Seeds are typically dispersed from mid-May to late May (Evans and Hannan 1990, p. 11). After the seeds ripen, the silique (pod) soon splits open. Seeds may immediately fall out or remain on the plant for several days. The extent to which this plant can expand to new sites is unknown.

Lloyd (1965, p. 92) noted that seeds from Leavenworthia lack adaptations that would allow for dispersal by wind or animals. Sheet flow likely provides local dispersion for seeds lying on the ground (Lloyd 1965, pp. 92-93; Evans and Hannan 1990, p. 11). In reviewing aerial photography and topographic mapping of known L. exigua var. laciniata occurrences, it appears that populations often follow suitable habitat as it extends along topographic contours or within drainage patterns. Areas of bare ground are essential in the dispersal and germination of seeds. The cyclical moisture availability on the thin soils of glades and other habitats acts to limit the number of plant species that can tolerate these extremes (Evans and Hannan 1990, pp. 9-10).

L. exigua var. laciniata seeds have been shown to retain viability for at least 3 years under greenhouse conditions (Baskin and Baskin 1981, p. 247). A strong seed bank is expected to be important for the continued existence of L. exigua var. laciniata, especially following a year when conditions are unfavorable for reproduction (e.g., damage (natural or manmade) to plants prior to seed set). Accordingly, L. exigua var. laciniata habitat must be protected from activities that would damage or destroy the seed bank.

Based on the information above, we identify glade and gladelike habitats with intact hydrology and an undisturbed seed bank to be a physical or biological feature essential to the conservation of L. exigua var. laciniata. These areas are critical for seed dispersal and germination.

Habitats Protected From Disturbance or Representative of the Historical, Geographical, and Ecological Distribution of the Species

Disturbance in the form of development (and associated infrastructure) is a major factor in the loss and degradation of habitat for L. exigua var. laciniata. Development can directly eliminate or fragment essential habitat and indirectly cause changes to the habitat (e.g., through erosion, shading, introduction of invasive plants—all of which may cause declines in distribution or in numbers of plants per occurrence). Protected habitats are, therefore, of crucial importance for the growth and dispersal of L. exigua var. laciniata. These areas are critical to protecting L. exigua var. laciniata populations and habitat from impacts such as sedimentation, erosion, and competition from nonnative or invasive plants.

Leavenworthia species have a patchy distribution within the exposed rock outcrops and shallow soil areas of cedar glade habitats and gladelike areas (Lloyd 1965, p. 87). L. exigua var. laciniata is an endemic species restricted to a very specific habitat type with a patchy distribution across the landscape separated by large areas of habitat unsuitable for L. exigua var. laciniata. Although these cedar glades also contain areas of deeper soil where other, associated vegetation grows, these areas of deeper soil are essential components of the glade and critical for maintaining habitat suitable for occupation by L. exigua var. laciniata.

Based on a review of aerial imagery, habitat areas that appear to provide sufficient protection generally have the hillside (creek to topographic break) and adjacent contour surrounding the glade areas in vegetated (primarily wooded) habitat. Buffer areas of this magnitude protect L. exigua var. laciniata populations and habitat from adjacent development and habitat change. Although these areas are not directly occupied by L. exigua var. laciniata, they are essential to the growth and dispersal of the species within areas of suitable habitat.

Therefore, based on the information above, we identify vegetated areas surrounding glades and gladelike habitats that protect the hydrology, soils, and seed bank to be a physical or biological feature for this species.

Primary Constituent Elements for L. exigua var. laciniata

Under the Act and its implementing regulations, we are required to identify the physical or biological features essential to the conservation of L. exigua var. laciniata in areas occupied at the time of listing, focusing on the features' primary constituent elements. Primary constituent elements are those specific elements of the physical or biological features that provide for a species' life-history processes and are essential to the conservation of the species.

Based on our current knowledge of the physical or biological features and habitat characteristics required to sustain the species' life-history processes, we determine that the primary constituent elements specific to L. exigua var. laciniata are:

(1) Cedar glades and gladelike areas within the range of L. exigua var. laciniata that include:

(b) Intact cyclic hydrologic regime involving saturation and/or inundation of the area in winter and early spring, then drying quickly in the summer;

(c) Full or nearly full sunlight; and

(d) An undisturbed seed bank.

(2) Vegetated land around glades and gladelike areas that extends up and down slope and ends at natural (e.g., stream, topographic contours) or manmade breaks (e.g., roads).

Special Management Considerations or Protection

When designating critical habitat, we assess whether the specific areas within the geographical area occupied by the species at the time of listing contain features that are essential to the conservation of the species and which may require special management considerations or protection.

Threats to those features that define primary constituent elements for L. exigua var. laciniata include (but are not limited to): (1) Residential and commercial development on private land; (2) construction and maintenance of roads and utility lines; (3) incompatible agricultural or grazing practices; (4) off-road vehicle (ORV) use or horseback riding; (5) encroachment by nonnative plants or forage species; and (6) forest encroachment due to fire suppression. These threats are in addition to random effects of droughts, floods, or other natural phenomena.

Special management considerations or protection are required within critical habitat areas to address these threats. Management activities that could address these threats include (but are not limited to): (1) Avoiding cedar glades (or suitable gladelike habitats) when planning the location of buildings, lawns, roads (including horse or ORV trails), or utilities; (2) avoiding aboveground construction and/or excavations in locations that would interfere with natural water movement to suitable habitat sites; (3) protecting and restoring as many glade complexes as possible; (4) research supporting the development of management recommendations for grazing and other agricultural practices; (5) technical or financial assistance to landowners that may help in the design and implementation of management actions that protect the plant and its habitat; (6) avoiding lawn grass or tree plantings near glades; and (7) habitat management, such as brush removal, prescribed fire, and/or eradication of lawn grasses to maintain an intact native glade vegetation community.

Criteria Used To Identify Critical Habitat

As required by section 4(b)(2) of the Act, we use the best scientific data available to designate critical habitat. In accordance with the Act and our implementing regulations at 50 CFR 424.12(b) we review available information pertaining to the habitat requirements of the species and identify areas occupied at the time of listing that contain the features essential to the conservation of the species. If, after identifying currently occupied areas, we determine that those areas are inadequate to ensure conservation of the species we then consider, in accordance with the Act and our implementing regulations at 50 CFR 424.12(e), whether designating additional areas outside those currently occupied is essential for the conservation of the species. Here, we are not designating any areas outside the geographical area occupied by the species because we have determined that occupied areas are sufficient for the conservation of the species, and we have no evidence that this taxon ever existed beyond its current range.

Sites were considered occupied if the Kentucky State Nature Preserves Commission (KSNPC) Element Occurrence Report (KSNPC 2012, pp. 1-108) considered an element occurrence to be an extant population at the time of the proposed listing rule (May 24, 2013).

We also reviewed available information that pertains to habitat requirements of Leavenworthia exigua var. laciniata. The sources of information include, but are not limited to:

1. Data used to prepare the proposed listing package;

2. Peer-reviewed articles, various agency reports, and the KSNPC Natural Heritage Program database;

3. Information from species experts; and

4. Regional Geographic Information System (GIS) data (such as species occurrence data, topography, aerial imagery, and land ownership maps) for area calculations and mapping.

Areas for critical habitat designation were selected based on the quality of the element occurrence(s), condition of the habitat, and distribution within the species' range. Typically, selected areas contain good quality or better occurrences (A, B, or C-ranked) and natural habitat, as identified by KSNPC in the Natural Heritage Report (2012, pp. 1-108). However, some lower quality occurrences, with restoration potential, are included to ensure that critical habitat is being designated across the species' range and to avoid a potential reduction of the distribution of L. exigua var. laciniata. The glade habitat upon which the species depends is often easily viewed using aerial photography. Additionally, aerial photography provides an overview of the land use surrounding the glades. Topographic maps provide contours and drainage patterns that were used to help identify potential areas for growth and expansion of the species. A combination of these tools, in a GIS interface, allowed for the determination of the critical habitat boundaries.

When determining critical habitat boundaries, we made every effort to avoid including developed areas such as lands covered by buildings, pavement, and other structures because such lands lack physical or biological features for L. exigua var. laciniata. The scale of the maps we prepared under the parameters for publication within the Code of Federal Regulations may not reflect the exclusion of such developed lands. Any such lands inadvertently left inside critical habitat boundaries shown on the maps of this final rule have been excluded by text and are not designated as critical habitat. Therefore, a Federal action involving these lands will not trigger section 7 consultation with respect to critical habitat and the requirement of no adverse modification unless the specific action would affect the physical or biological features in the adjacent critical habitat.

The critical habitat designation is defined by the map or maps, as modified by any accompanying regulatory text, presented at the end of this document in the Regulation Promulgation section. We include more detailed information on the boundaries of the critical habitat designation in the preamble of this document. We will make the coordinates or plot points or both on which each map is based available to the public on http://www.regulations.gov at Docket No. FWS-R4-ES-2013-0015, and at the field office responsible for the designation (see FOR FURTHER INFORMATION CONTACT).

Final Critical Habitat Designation

We are designating six units, consisting of 18 subunits, as critical habitat for L. exigua var. laciniata. The critical habitat areas described below constitute our best assessment at this time of areas that meet the definition of critical habitat. Those six units are: (1) Unit 1: McNeely Lake, (2) Unit 2: Old Mans Run, (3) Unit 3: Mount Washington, (4) Unit 4: Cedar Creek, (5) Unit 5: Cox Creek, and (6) Unit 6: Rocky Run. All units and subunits are currently occupied by the species and contain all physical and biological features and primary constituent elements that are essential to the conservation of the species.

Unit 1 consists of 18 acres (ac) (7 hectares (ha)) within McNeely Lake Park in Jefferson County, Kentucky. This critical habitat unit is under county government ownership. This critical habitat unit occurs at the northwestern edge of the species' range, where there is little remaining habitat and few occurrences, and therefore this unit is important to the distribution of the species. Habitat degradation (e.g., erosion, invasive species) is impacting the species' ability to persist within this unit; however, the landowner has received funding and is working with the Service and KSNPC to develop a management plan for the site and to implement habitat improvement practices. These planned activities are expected to improve population numbers and viability at this important site. This unit helps to maintain the geographical range of the species and provides opportunity for population growth. Within Unit 1, the features essential to the conservation of the species may require special management considerations or protection to address potential adverse effects associated with encroachment by nonnative plants or forage species, and forest encroachment due to fire suppression.

Unit 2 consists of three subunits totaling 1,014 ac (410 ha) in Bullitt and Jefferson Counties, Kentucky. It is located just south of the Jefferson/Bullitt County line and extends north of Old Mans Run. This critical habitat unit includes four element occurrences. Subunit 2B represents the best remaining populations and habitat for L. exigua var. laciniata in Jefferson County. Subunits 2A and 2C are important areas at the northern extent of the species' range. These three subunits represent the northeastern extent of the population's range and increase population redundancy within the species' range. The features essential to the conservation of the species in Unit 2 may require special management considerations or protection to address potential adverse effects associated with development on private land, incompatible agricultural or grazing practices, ORV or horseback riding, competition from lawn grasses, and forest encroachment.

Subunit 2A is 102 ac (41 ha) in size and is located west of US 150 and northwest of Floyds Fork. It is in private ownership. While all PCEs are present within this subunit, it contains few native plant associates for L. exigua var. laciniata, and the increased competition from lawn grasses may decrease the ability of L. exigua var. laciniata to persist. This subunit is important for maintaining the northern distribution of L. exigua var. laciniata.

Subunit 2B is 870 ac (352 ha) in size and is located east of US 150 and extends north and south of Old Mans Run. It is in private ownership. This is the largest of the subunits and contains the two highest ranked (1-B and 1-C) occurrences in Jefferson County. It represents the best remaining habitat in this portion of the range and may contain more than half of the total L. exigua var. laciniata population based on a 2011 survey by KSNPC, which estimated more than 20,000 individuals at 4 sites within this subunit. In this subunit, competition from lawn grasses impacts L. exigua var. laciniata and may decrease the plant's ability to persist.

Subunit 2C is 42 ac (17 ha) in size and is located west of US 150 and east of Floyds Fork, extending into both Bullitt and Jefferson Counties. It is in private ownership. This subunit is primarily pasture, and habitat for L. exigua var. laciniata is impacted by competition from lawn grasses. Habitat management within this subunit to improve habitat for L. exigua var. laciniata is important for maintaining the northern distribution of the species.

Unit 3 consists of 42 ac (17 ha) and includes three subunits in Bullitt County, Kentucky, primarily within or adjacent to the city limits of Mount Washington. This critical habitat unit includes three element occurrences and provides an important link between the northern and southern portions of the species' range. Within Unit 3, the features essential to the conservation of the species may require special management considerations or protection to address potential adverse effects associated with development on private land, incompatible agricultural or grazing practices, ORV or horseback riding, competition from lawn grasses, and forest encroachment due to fire suppression.

Subunit 3A is 25 ac (10 ha) in size and is located northeast of Mount Washington. It is in private ownership. Habitat for L. exigua var. laciniata within this subunit is degraded and would improve with management. It represents important habitat on the eastern extent of the species' range. In this subunit, habitat conversion and ORV use impact L. exigua var. laciniata habitat and may decrease the species' ability to persist at this site.

Subunit 3B is 7 ac (3 ha) in size and is located east of Hubbard Lane and south of Keeneland Drive. It is in private ownership. The glade habitat has been degraded by adjacent land use and would benefit from improved management. The subunit represents an important link between other subunits.

Subunit 3C is 10 ac (4 ha) in size and is located east of US 150 and south of Highway 44E. It is in private ownership. The subunit represents an important and high quality cedar glade in an area of ongoing, intensive development. Land use surrounding the glade remnant appears stable and the glade contains several native plant species associated with L. exigua var. laciniata.

Unit 4 consists of 547 ac (221 ha) and includes eight subunits, all in Bullitt County, Kentucky. This unit is located south of the Salt River and northeast of Cedar Grove and seems to represent the core of the remaining high-quality habitat for L. exigua var. laciniata. It includes eight element occurrences. In addition to being a stronghold for the species, these subunits are generally within close proximity (less than 0.5 miles (0.8 km)) to each other and represent the best opportunity for genetic exchange between occurrences.

Within Unit 4, the features essential to the conservation of the species may require special management considerations or protection to address potential adverse effects associated with development on private land, incompatible agricultural or grazing practices, ORV or horseback riding, competition from lawn grasses, and forest encroachment due to fire suppression.

Subunit 4A is 91 ac (37 ha) in size and is located south of Cedar Creek and west of Pine Creek Trail. This subunit is owned by The Nature Conservancy and encompasses most of the Pine Creek Barrens Preserve. This excellent-quality glade represents the only remaining “A” rank occurrence for L. exigua var. laciniata.

Subunit 4B is 69 ac (28 ha) in size and is located along an unnamed tributary to Cedar Creek, and south of KY 1442. This good-quality glade includes the Apple Valley Glade State Nature Preserve, owned by KSNPC (approximately 30 percent of subunit), as well as private land, including some under permanent conservation easement (approximately 41 percent of subunit) to protect L. exigua var. laciniata. Approximately 29 percent of this subunit is under private ownership without any protections for L. exigua var. laciniata.

Subunit 4C is 83 ac (34 ha) in size and located north of Cedar Creek and south of Apple Valley State Nature Preserve. It is in private ownership. This subunit contains high-quality glades with a community of native plants present.

Subunit 4D is 46 ac (19 ha) in size and is located north of Cedar Creek and south of Victory Church. It is in private ownership. This subunit has been degraded and would benefit from improved management. Native plants associated with L. exigua var. laciniata occur within this subunit, but competition from lawn grasses, as well as forest encroachment due to fire suppression, impacts L. exigua var. laciniata and may decrease its ability to persist.

Subunit 4E is 102 ac (41 ha) in size and is located southeast of subunit 4D and across Cedar Creek. It is in private ownership. It contains a large number of L. exigua var. laciniata (several thousand), but the habitat has been degraded by adjacent land use and would benefit from improved management. Competition from lawn grasses, as well as forest encroachment due to fire suppression, affects L. exigua var. laciniata and may decrease the plant's ability to persist.

Subunit 4F is 120 ac (49 ha) in size and is south of the confluence of Cedar Creek and Greens Branch. It is in private ownership. This is a degraded glade that still contains native plants associated with L. exigua var. laciniata. The subunit is disturbed by existing and surrounding land uses, as well as utility line maintenance and ORV use, which may decrease the species' ability to persist.

Subunit 4G is 20 ac (8 ha) in size and is located along either site of KY 480 near White Run Road. It is in private ownership. This site contains a large number of plants; however, improved habitat conditions are needed for long-term viability of the L. exigua var. laciniata occurrence. Impacts to L. exigua var. laciniata, which may decrease its ability to persist at this site, include incompatible agricultural or grazing practices, ORV use, competition from lawn grasses, and forest encroachment due to fire suppression.

Subunit 4H is 16 ac (6 ha) in size and is located 0.95 miles southeast of the KY 480/KY 1604 intersection. It is in private ownership. Within this subunit, several patches of good habitat for L. exigua var. laciniata remain as well as a good diversity of native plant associates. However, competition from lawn grasses, as well as forest encroachment due to fire suppression, affects L. exigua var. laciniata and may decrease its ability to persist.

Unit 5, Subunits A and B: Cox Creek, Bullitt County, Kentucky

Unit 5 consists of 58 ac (23 ha) and includes two subunits, both in Bullitt County, Kentucky. It includes two element occurrences, representing the most easterly occurrences south of the Salt River. These subunits are important for maintaining the distribution and genetic diversity of the species.

Within Unit 5, the features essential to the conservation of the species may require special management considerations or protection to address potential adverse effects associated with illegal waste dumps, development on private land, incompatible agricultural or grazing practices, ORV or horseback riding, competition from lawn grasses, and forest encroachment due to fire suppression.

Subunit 5A is 8 ac (3 ha) in size and is located east of Cox Creek and west of KY 1442. It is in private ownership. This site is threatened by ORV use and would benefit from improved habitat management.

Subunit 5B is 50 ac (20 ha) in size and is located west of Cox Creek near the Bullitt/Spencer County line. It is in private ownership. Incompatible agricultural practices and ORV use impacts L. exigua var. laciniata and may decrease its ability to persist. The native flora is mostly intact, and L. exigua var. laciniata would benefit from improved habitat management.

Unit 6: Rocky Run, Bullitt County, Kentucky

Unit 6 consists of 374 ac (151 ha) in Bullitt County, Kentucky. This critical habitat unit includes habitat that is under private ownership, including one 16-acre registered natural area. It includes one element occurrence. This unit appears to represent the largest intact glade habitat remaining within the range of the species. Within Unit 6, the features essential to the conservation of the species may require special management considerations or protection to address potential adverse effects associated with development on private land, incompatible agricultural or grazing practices, competition from lawn grasses, and forest encroachment due to fire suppression.

Effects of Critical Habitat DesignationSection 7 Consultation

Section 7(a)(2) of the Act requires Federal agencies, including the Service, to ensure that any action they fund, authorize, or carry out is not likely to jeopardize the continued existence of any endangered species or threatened species or result in the destruction or adverse modification of designated critical habitat of such species. In addition, section 7(a)(4) of the Act requires Federal agencies to confer with the Service on any agency action which is likely to jeopardize the continued existence of any species proposed to be listed under the Act or result in the destruction or adverse modification of proposed critical habitat.

Decisions by the 5th and 9th Circuit Courts of Appeals have invalidated our regulatory definition of “destruction or adverse modification” (50 CFR 402.02) (see Gifford Pinchot Task Force v. U.S. Fish and Wildlife Service, 378 F.3d 1059 (9th Cir. 2004) and Sierra Club v. U.S. Fish and Wildlife Service, 245 F.3d 434 (5th Cir. 2001)), and we do not rely on this regulatory definition when analyzing whether an action is likely to destroy or adversely modify critical habitat. Under the provisions of the Act, we determine destruction or adverse modification on the basis of whether, with implementation of the proposed Federal action, the affected critical habitat would continue to serve its intended conservation role for the species.

If a Federal action may affect a listed species or its critical habitat, the responsible Federal agency (action agency) must enter into consultation with us. Examples of actions that are subject to the section 7 consultation process are actions on State, tribal, local, or private lands that require a Federal permit (such as a permit from the U.S. Army Corps of Engineers under section 404 of the Clean Water Act (33 U.S.C. 1251 et seq.) or a permit from the Service under section 10 of the Act) or that involve some other Federal action (such as funding from the Federal Highway Administration, Federal Aviation Administration, or the Federal Emergency Management Agency). Federal actions not affecting listed species or critical habitat, and actions on State, tribal, local, or private lands that are not federally funded or authorized, do not require section 7 consultation.

As a result of section 7 consultation, we document compliance with the requirements of section 7(a)(2) through our issuance of:

(1) A concurrence letter for Federal actions that may affect, but are not likely to adversely affect, listed species or critical habitat; or

(2) A biological opinion for Federal actions that may affect and are likely to adversely affect, listed species or critical habitat.

When we issue a biological opinion concluding that a project is likely to jeopardize the continued existence of a listed species and/or destroy or adversely modify critical habitat, we provide reasonable and prudent alternatives to the project, if any are identifiable, that would avoid the likelihood of jeopardy and/or destruction or adverse modification of critical habitat. We define “reasonable and prudent alternatives” (at 50 CFR 402.02) as alternative actions identified during consultation that:

(1) Can be implemented in a manner consistent with the intended purpose of the action,

(2) Can be implemented consistent with the scope of the Federal agency's legal authority and jurisdiction,

(3) Are economically and technologically feasible, and

(4) Would, in the Director's opinion, avoid the likelihood of jeopardizing the continued existence of the listed species and/or avoid the likelihood of destroying or adversely modifying critical habitat.

Reasonable and prudent alternatives can vary from slight project modifications to extensive redesign or relocation of the project. Costs associated with implementing a reasonable and prudent alternative are similarly variable.

Regulations at 50 CFR 402.16 require Federal agencies to reinitiate consultation on previously reviewed actions in instances where we have listed a new species or subsequently designated critical habitat that may be affected and the Federal agency has retained discretionary involvement or control over the action (or the agency's discretionary involvement or control is authorized by law). Consequently, Federal agencies sometimes may need to request reinitiation of consultation with us on actions for which formal consultation has been completed, if those actions with discretionary involvement or control may affect subsequently listed species or designated critical habitat.

Application of the “Adverse Modification” Standard

The key factor related to the adverse modification determination is whether, with implementation of the proposed Federal action, the affected critical habitat would continue to serve its intended conservation role for the species. Activities that may destroy or adversely modify critical habitat are those that alter the physical or biological features to an extent that appreciably reduces the conservation value of critical habitat for L. exigua var. laciniata. As discussed above, the role of critical habitat is to support life-history needs of the species and provide for the conservation of the species.

Section 4(b)(8) of the Act requires us to briefly evaluate and describe, in any proposed or final regulation that designates critical habitat, activities involving a Federal action that may destroy or adversely modify such habitat, or that may be affected by such designation.

Activities that may affect critical habitat, when carried out, funded, or authorized by a Federal agency, should result in consultation for L. exigua var. laciniata. These activities include, but are not limited to:

(1) Actions within or near critical habitat that would result in the loss of bare or open ground. Such activities could include, but are not limited to: Development; road maintenance, widening, or construction; and utility line construction or maintenance. These activities could eliminate or reduce the habitat necessary for growth, reproduction, and/or expansion of L. exigua var. laciniata.

(2) Actions within or near critical habitat that would modify the hydrologic regime that allows for the shallow soils to be very wet in late winter to early spring and dry quickly. Such activities could include, but are not limited to: Development; road maintenance, widening, or construction; and utility line construction or maintenance. These activities could alter habitat conditions to the point of eliminating the site conditions required for growth, reproduction, and/or expansion of L. exigua var. laciniata.

(3) Actions within or near critical habitat that would remove or alter vegetation and allow erosion, sedimentation, shading, or the introduction or expansion of invasive species. Such activities could include, but are not limited to: Land clearing; silviculture; fertilizer, herbicide, or insecticide applications; development; road maintenance, widening, or construction; and utility line construction or maintenance. These activities could alter habitat conditions to the point of eliminating the site conditions required for growth, reproduction, and/or expansion of L. exigua var. laciniata.

ExemptionsApplication of Section 4(a)(3) of the Act

Section 4(a)(3)(B)(i) of the Act (16 U.S.C. 1533(a)(3)(B)(i)) provides that: “The Secretary shall not designate as critical habitat any lands or other geographical areas owned or controlled by the Department of Defense, or designated for its use, that are subject to an integrated natural resources management plan [INRMP] prepared under section 101 of the Sikes Act (16 U.S.C. 670a), if the Secretary determines in writing that such plan provides a benefit to the species for which critical habitat is proposed for designation.” There are no Department of Defense lands with a completed INRMP within the critical habitat designation.

Consideration of Impacts Under Section 4(b)(2) of the Act

Section 4(b)(2) of the Act states that the Secretary shall designate and make revisions to critical habitat on the basis of the best available scientific data after taking into consideration the economic impact, national security impact, and any other relevant impact of specifying any particular area as critical habitat. The Secretary may exclude an area from critical habitat if she determines that the benefits of such exclusion outweigh the benefits of specifying such area as part of the critical habitat, unless she determines, based on the best scientific data available, that the failure to designate such area as critical habitat will result in the extinction of the species. In making that determination, the statute on its face, as well as the legislative history, are clear that the Secretary has broad discretion regarding which factor(s) to use and how much weight to give to any factor.

Consideration of Economic Impacts

Under section 4(b)(2) of the Act, we consider the economic impacts of specifying any particular area as critical habitat. In order to consider economic impacts, we prepared an incremental effects memorandum (IEM) and screening analysis which together with our narrative and interpretation of effects we consider our draft economic analysis (DEA) of the proposed critical habitat designation and related factors (IEc 2013). The analysis was made available for public review from January 7, 2014, through February 6, 2014 (79 FR 796). The DEA addressed potential economic impacts of critical habitat designation for L. exigua var. laciniata. Following the close of the comment period, we reviewed and evaluated all information submitted during the comment period that may pertain to our consideration of the probable incremental economic impacts of this critical habitat designation. Additional information relevant to the probable incremental economic impacts of critical habitat designation for L. exigua var. laciniata is summarized below and available in the screening analysis for L. exigua var. laciniata (IEc 2013), available at http://www.regulations.gov.

The screening analysis addresses how probable economic impacts are likely to be distributed, including an assessment of any local or regional impacts of habitat conservation and the potential effects of conservation activities on government agencies, private businesses, and individuals. Decision-makers can use this information to evaluate whether the effects of the designation might unduly burden a particular group, area, or economic sector. The screening analysis assesses the economic impacts of L. exigua var. laciniata conservation efforts associated with the following categories of activity: Residential and commercial development; transportation projects; recreational activities; agricultural activities; utility projects; and commercial timber harvest.

In general, because L. exigua var. laciniata is a narrow endemic species, and all of the critical habitat units are occupied by the species, the quality of its habitat is closely linked to the species' survival (USFWS 2013). Consequently, the Service believes that in most circumstances, there will be no conservation efforts needed to prevent adverse modification of critical habitat beyond those that would be required to prevent jeopardy to the species. Any anticipated incremental costs of the critical habitat designation costs will predominantly be administrative in nature and would not be significant. Critical habitat may impact property values indirectly if developers assume the designation will limit the potential use of that land. However, the designation of critical habitat is not likely to result in an increase of consultations, but rather only the additional administrative effort within each consultation to address the effects of each proposed agency action on critical habitat.

Exclusions Based on Economic Impacts

Our economic analysis did not identify any disproportionate costs that are likely to result from the designation. Consequently, the Secretary is not exercising her discretion to exclude any areas from this designation of critical habitat for L. exigua var. laciniata based on economic impacts.

A copy of the IEM and screening analysis with supporting documents may be obtained by contacting the Kentucky Ecological Services Field Office (see ADDRESSES) or by downloading from the Internet at http://www.regulations.gov.

Exclusions Based on National Security Impacts or Homeland Security Impacts

Under section 4(b)(2) of the Act, we consider whether there are lands owned or managed by the Department of Defense where a national security impact might exist. In preparing this final rule, we have determined that no lands within the designation of critical habitat for L. exigua var. laciniata are owned or managed by the Department of Defense or Department of Homeland Security, and, therefore, we anticipate no impact to national security or homeland security. Consequently, the Secretary is not exercising her discretion to exclude any areas from this final designation based on impacts to national security or homeland security.

Exclusions Based on Other Relevant Impacts

Under section 4(b)(2) of the Act, we also consider any other relevant impacts resulting from the designation of critical habitat. We consider a number of factors, including whether the landowners have developed any HCPs or other management plans for the area, or whether there are conservation partnerships that would be encouraged by designation of, or exclusion from, critical habitat. In addition, we look at any tribal issues and consider the government-to-government relationship of the United States with tribal entities. We also consider any social impacts that might occur because of the designation.

In preparing this final rule, we have determined that there are currently no permitted HCPs or other approved management plans for L. exigua var. laciniata, and the final designation does not include any tribal lands or trust resources. We anticipate no impact on partnerships or HCPs from this critical habitat designation. Accordingly, the Secretary is not exercising her discretion to exclude any areas from this final designation based on other relevant impacts.

Executive Order 12866 provides that the Office of Information and Regulatory Affairs (OIRA) will review all significant rules. The Office of Information and Regulatory Affairs has determined that this rule is not significant.

Executive Order 13563 reaffirms the principles of E.O. 12866 while calling for improvements in the nation's regulatory system to promote predictability, to reduce uncertainty, and to use the best, most innovative, and least burdensome tools for achieving regulatory ends. The executive order directs agencies to consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public where these approaches are relevant, feasible, and consistent with regulatory objectives. E.O. 13563 emphasizes further that regulations must be based on the best available science and that the rulemaking process must allow for public participation and an open exchange of ideas. We have developed this rule in a manner consistent with these requirements.

Regulatory Flexibility Act (5 U.S.C. 601 et seq.)

Under the Regulatory Flexibility Act (RFA; 5 U.S.C. 601 et seq.), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA; 5 U.S.C. 801 et seq.), whenever an agency is required to publish a notice of rulemaking for any proposed or final rule, it must prepare and make available for public comment a regulatory flexibility analysis that describes the effects of the rule on small entities (i.e., small businesses, small organizations, and small government jurisdictions). However, no regulatory flexibility analysis is required if the head of the agency certifies the rule will not have a significant economic impact on a substantial number of small entities. The SBREFA amended the RFA to require Federal agencies to provide a certification statement of the factual basis for certifying that the rule will not have a significant economic impact on a substantial number of small entities.

According to the Small Business Administration, small entities include small organizations such as independent nonprofit organizations; small governmental jurisdictions, including school boards and city and town governments that serve fewer than 50,000 residents; and small businesses (13 CFR 121.201). Small businesses include manufacturing and mining concerns with fewer than 500 employees, wholesale trade entities with fewer than 100 employees, retail and service businesses with less than $5 million in annual sales, general and heavy construction businesses with less than $27.5 million in annual business, special trade contractors doing less than $11.5 million in annual business, and agricultural businesses with annual sales less than $750,000. To determine if potential economic impacts to these small entities are significant, we considered the types of activities that might trigger regulatory impacts under this designation as well as types of project modifications that may result. In general, the term “significant economic impact” is meant to apply to a typical small business firm's business operations.

The Service's current understanding of the requirements under the RFA, as amended, and following recent court decisions, is that Federal agencies are only required to evaluate the potential incremental impacts of rulemaking on those entities directly regulated by the rulemaking itself, and therefore, not required to evaluate the potential impacts to indirectly regulated entities. The regulatory mechanism through which critical habitat protections are realized is section 7 of the Act, which requires Federal agencies, in consultation with the Service, to ensure that any action authorized, funded, or carried by the agency is not likely to destroy or adversely modify critical habitat. Therefore, under section 7 only Federal action agencies are directly subject to the specific regulatory requirement (avoiding destruction and adverse modification) imposed by critical habitat designation. Consequently, it is our position that only Federal action agencies will be directly regulated by this designation. There is no requirement under RFA to evaluate the potential impacts to entities not directly regulated. Moreover, Federal agencies are not small entities. Therefore, because no small entities are directly regulated by this rulemaking, the Service certifies that this final critical habitat designation will not have a significant economic impact on a substantial number of small entities.

During the development of this final rule, we reviewed and evaluated all information submitted during the comment period that may pertain to our consideration of the probable incremental economic impacts of this critical habitat designation. Based on this information, we affirm our certification that this final critical habitat designation will not have a significant economic impact on a substantial number of small entities, and a regulatory flexibility analysis is not required.

Energy Supply, Distribution, or Use—Executive Order 13211

Executive Order 13211 (Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use) requires agencies to prepare Statements of Energy Effects when undertaking certain actions. OMB has provided guidance for implementing this Executive Order that outlines nine outcomes that may constitute “a significant adverse effect” when compared to not taking the regulatory action under consideration.

The DEA finds that none of these criteria is relevant to this analysis. Thus, based on information in the economic analysis, energy-related impacts associated with L. exigua var. laciniata conservation activities within critical habitat are not expected. As such, the designation of critical habitat is not expected to significantly affect energy supplies, distribution, or use. Therefore, this action is not a significant energy action, and no Statement of Energy Effects is required.

Unfunded Mandates Reform Act (2 U.S.C. 1501 et seq.)

In accordance with the Unfunded Mandates Reform Act (2 U.S.C. 1501 et seq.), we make the following findings:

(1) This rule will not produce a Federal mandate. In general, a Federal mandate is a provision in legislation, statute, or regulation that would impose an enforceable duty upon State, local, or tribal governments, or the private sector, and includes both “Federal intergovernmental mandates” and “Federal private sector mandates.” These terms are defined in 2 U.S.C. 658(5)-(7). “Federal intergovernmental mandate” includes a regulation that “would impose an enforceable duty upon State, local, or tribal governments” with two exceptions. It excludes “a condition of Federal assistance.” It also excludes “a duty arising from participation in a voluntary Federal program,” unless the regulation “relates to a then-existing Federal program under which $500,000,000 or more is provided annually to State, local, and tribal governments under entitlement authority,” if the provision would “increase the stringency of conditions of assistance” or “place caps upon, or otherwise decrease, the Federal Government's responsibility to provide funding,” and the State, local, or tribal governments “lack authority” to adjust accordingly. At the time of enactment, these entitlement programs were: Medicaid; Aid to Families with Dependent Children work programs; Child Nutrition; Food Stamps; Social Services Block Grants; Vocational Rehabilitation State Grants; Foster Care, Adoption Assistance, and Independent Living; Family Support Welfare Services; and Child Support Enforcement. “Federal private sector mandate” includes a regulation that “would impose an enforceable duty upon the private sector, except (i) a condition of Federal assistance or (ii) a duty arising from participation in a voluntary Federal program.”

The designation of critical habitat does not impose a legally binding duty on non-Federal Government entities or private parties. Under the Act, the only regulatory effect is that Federal agencies must ensure that their actions do not destroy or adversely modify critical habitat under section 7. While non-Federal entities that receive Federal funding, assistance, or permits, or that otherwise require approval or authorization from a Federal agency for an action, may be indirectly impacted by the designation of critical habitat, the legally binding duty to avoid destruction or adverse modification of critical habitat rests squarely on the Federal agency. Furthermore, to the extent that non-Federal entities are indirectly impacted because they receive Federal assistance or participate in a voluntary Federal aid program, the Unfunded Mandates Reform Act would not apply, nor would critical habitat shift the costs of the large entitlement programs listed above onto State governments.

(2) We do not believe that this rule will significantly or uniquely affect small governments because it will not produce a Federal mandate of $100 million or greater in any year, that is, it is not a “significant regulatory action” under the Unfunded Mandates Reform Act. Small governments will be affected only to the extent that any programs having Federal funds, permits, or other authorized activities must ensure that their actions will not adversely affect the critical habitat. The final economic analysis concludes incremental impacts may occur due to administrative costs of section 7 consultations for activities related to commercial, residential, and recreational development and associated actions; however, these are not expected to significantly affect small government entities. Consequently, a Small Government Agency Plan is not required.

Takings—Executive Order 12630

In accordance with Executive Order 12630 (“Government Actions and Interference with Constitutionally Protected Private Property Rights”), we have analyzed the potential takings implications of designating critical habitat for L. exigua var. laciniata in a takings implications assessment. As discussed above, the designation of critical habitat affects only Federal actions. Although private parties that receive Federal funding, assistance, or require approval or authorization from a Federal agency for an action may be indirectly impacted by the designation of critical habitat, the legally binding duty to avoid destruction or adverse modification of critical habitat rests squarely on the Federal agency. The DEA found that no significant economic impacts are likely to result from the designation of critical habitat for L. exigua var. laciniata. Because the Act's critical habitat protection requirements apply only to Federal agency actions, few conflicts between critical habitat and private property rights should result from this designation. Based on the best available information, the takings implications assessment concludes that this designation of critical habitat for L. exigua var. laciniata does not pose significant takings implications.

Federalism—Executive Order 13132

In accordance with E.O. 13132 (Federalism), this rule does not have significant Federalism effects. A federalism summary impact statement is not required. In keeping with Department of the Interior and Department of Commerce policy, we requested information from, and coordinated development of this critical habitat designation with, appropriate State resource agencies in Kentucky. We received comments from the Kentucky State Nature Preserves Commission and have addressed them in the Summary of Comments and Recommendations section of the rule. From a federalism perspective, the designation of critical habitat directly affects only the responsibilities of Federal agencies. The Act imposes no other duties with respect to critical habitat, either for States and local governments, or for anyone else. As a result, the rule does not have substantial direct effects either on the States, or on the relationship between the national government and the States, or on the distribution of powers and responsibilities among the various levels of government. The designation may have some benefit to these governments because the areas that contain the features essential to the conservation of the species are more clearly defined, and the physical and biological features of the habitat necessary to the conservation of the species are specifically identified. This information does not alter where and what federally sponsored activities may occur. However, it may assist these local governments in long-range planning (because these local governments no longer have to wait for case-by-case section 7 consultations to occur).

Where State and local governments require approval or authorization from a Federal agency for actions that may affect critical habitat, consultation under section 7(a)(2) would be required. While non-Federal entities that receive Federal funding, assistance, or permits, or that otherwise require approval or authorization from a Federal agency for an action, may be indirectly impacted by the designation of critical habitat, the legally binding duty to avoid destruction or adverse modification of critical habitat rests squarely on the Federal agency.

Civil Justice Reform—Executive Order 12988

In accordance with Executive Order 12988 (Civil Justice Reform), the Office of the Solicitor has determined that the rule does not unduly burden the judicial system and that it meets the applicable standards set forth in sections 3(a) and 3(b)(2) of the Order. We are designating critical habitat in accordance with the provisions of the Act. To assist the public in understanding the habitat needs of the species, the rule identifies the elements of physical or biological features essential to the conservation of L. exigua var. laciniata. The designated areas of critical habitat are presented on maps, and the rule provides several options for the interested public to obtain more detailed location information, if desired.

Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.)

This rule does not contain any new collections of information that require approval by OMB under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). This rule will not impose recordkeeping or reporting requirements on State or local governments, individuals, businesses, or organizations. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number.

National Environmental Policy Act (42 U.S.C. 4321 et seq.)

It is our position that, outside the jurisdiction of the U.S. Court of Appeals for the Tenth Circuit, we do not need to prepare environmental analyses pursuant to NEPA in connection with designating critical habitat under the Act. We published a notice outlining our reasons for this determination in the Federal Register on October 25, 1983 (48 FR 49244). This position was upheld by the U.S. Court of Appeals for the Ninth Circuit (Douglas County v. Babbitt, 48 F.3d 1495 (9th Cir. 1995), cert. denied 516 U.S. 1042 (1996)).

Government-to-Government Relationship With Tribes

In accordance with the President's memorandum of April 29, 1994 (Government-to-Government Relations with Native American Tribal Governments; 59 FR 22951), Executive Order 13175 (Consultation and Coordination With Indian Tribal Governments), and the Department of the Interior's manual at 512 DM 2, we readily acknowledge our responsibility to communicate meaningfully with recognized Federal Tribes on a government-to-government basis. In accordance with Secretarial Order 3206 of June 5, 1997 (American Indian Tribal Rights, Federal-Tribal Trust Responsibilities, and the Endangered Species Act), we readily acknowledge our responsibilities to work directly with tribes in developing programs for healthy ecosystems, to acknowledge that tribal lands are not subject to the same controls as Federal public lands, to remain sensitive to Indian culture, and to make information available to tribes. As stated above, we are not designating critical habitat for L. exigua var. laciniata on tribal lands.

References Cited

A complete list of all references cited is available on the Internet at http://www.regulations.gov and upon request from the Kentucky Ecological Services Field Office (see FOR FURTHER INFORMATION CONTACT).

Authors

The primary authors of this rulemaking are the staff members of the Kentucky Ecological Services Field Office.

Accordingly, we amend part 17, subchapter B of chapter I, title 50 of the Code of Federal Regulations, as set forth below:

PART 17—[AMENDED]1. The authority citation for part 17 continues to read as follows:Authority:

16 U.S.C. 1361-1407; 1531-1544; 4201-4245, unless otherwise noted.

2. In § 17.96, amend paragraph (a) by adding an entry for “Leavenworthia exigua var. laciniata (Kentucky glade cress)” in alphabetical order under the family Brassicaceae, to read as follows:§ 17.96Critical habitat—plants.

(B) Intact cyclic hydrologic regime involving saturation and/or inundation of the area in winter and early spring, then drying quickly in the summer;

(C) Full or nearly full sunlight; and

(D) An undisturbed seed bank.

(ii) Vegetated land around glades and gladelike areas that extends up and down slope and ends at natural (e.g., stream, topographic contours) or manmade breaks (e.g., roads).

(3) Critical habitat does not include manmade structures (such as buildings, aqueducts, runways, roads, and other paved areas) and the land on which they are located existing within the legal boundaries on June 5, 2014.

(4) Critical habitat map units. Data layers defining critical habitat map units were created using a base of aerial photographs (USDA National Agricultural Imagery Program; NAIP 2010), and USA Topo Maps (National Geographic Society 2011). Critical habitat units were then mapped using Universal Transverse Mercator (UTM) Zone 16 North American Datum (NAD) 1983 coordinates. The maps in this entry, as modified by any accompanying regulatory text, establish the boundaries of the critical habitat designation. The coordinates or plot points or both on which each map is based are available to the public at the Service's Internet site, at http://www.regulations.gov at Docket No. FWS-R4-ES-2013-0015, and at the field office responsible for this designation. You may obtain field office location information by contacting one of the Service regional offices, the addresses of which are listed at 50 CFR 2.2.

National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.

ACTION:

Temporary rule; inseason Angling category retention limit adjustment.

SUMMARY:

NMFS has determined that the Atlantic bluefin tuna (BFT) daily retention limit that applies to vessels permitted in the Highly Migratory Species (HMS) Angling category and the HMS Charter/Headboat category (when fishing recreationally for BFT) should be adjusted for the remainder of 2014, based on consideration of the regulatory determination criteria regarding inseason adjustments. The adjusted limit for private vessels (i.e., those with HMS Angling category permits) is one school BFT and one large school/small medium BFT per vessel per day/trip (i.e., one BFT measuring 27 to less than 47 inches, and one BFT measuring 47 to less than 73 inches). The adjusted limit for charter vessels (i.e., those with HMS Charter/Headboat permits) is two school BFT and one large school/small medium BFT per vessel per day/trip (i.e., two BFT measuring 27 to less than 47 inches, and one BFT measuring 47 to less than 73 inches). These retention limits are effective in all areas, except for the Gulf of Mexico, where NMFS prohibits targeted fishing for BFT.

DATES:

Effective May 8, 2014, through December 31, 2014.

FOR FURTHER INFORMATION CONTACT:

Sarah McLaughlin or Brad McHale, 978-281-9260.

SUPPLEMENTARY INFORMATION:

Regulations implemented under the authority of the Atlantic Tunas Convention Act (ATCA; 16 U.S.C. 971 et seq.) and the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act; 16 U.S.C. 1801 et seq.) governing the harvest of BFT by persons and vessels subject to U.S. jurisdiction are found at 50 CFR part 635. Section 635.27 subdivides the U.S. BFT quota recommended by the International Commission for the Conservation of Atlantic Tunas (ICCAT) among the various domestic fishing categories, per the allocations established in the 2006 Consolidated Atlantic Highly Migratory Species Fishery Management Plan (2006 Consolidated HMS FMP) and in accordance with implementing regulations (71 FR 58058, October 2, 2006). NMFS is required under ATCA and the Magnuson-Stevens Act to provide U.S. fishing vessels with a reasonable opportunity to harvest the ICCAT-recommended quota.

The 2014 BFT fishing year, which is managed on a calendar-year basis and subject to an annual calendar-year quota, began January 1, 2014. The Angling category season opened January 1, 2014, and continues through December 31, 2014. The size classes of BFT are summarized in Table 1. Please note that large school and small medium BFT traditionally have been managed as one size class, as described below, i.e., a limit of one large school/small medium BFT (measuring 47 to less than 73 inches).

Table 1—BFT Size ClassesSize class Curved fork lengthSchool27 to less than 47 inches (68.5 to less than 119 cm).Large school47 to less than 59 inches (119 to less than 150 cm).Small medium59 to less than 73 inches (150 to less than 185 cm).Large medium73 to less than 81 inches (185 to less than 206 cm).Giant81 inches or greater (206 cm or greater).

Currently, the default Angling category daily retention limit of one school, large school, or small medium BFT applies (§ 635.23(b)(2)). These retention limits apply to HMS Angling and to HMS Charter/Headboat category permitted vessels (when fishing recreationally for BFT). The currently codified Angling category quota is 182 mt (94.9 mt for school BFT, 82.9 mt for large school/small medium BFT, and 4.2 mt for large medium/giant BFT).

Adjustment of Angling Category Daily Retention Limit

Under § 635.23(b)(3), NMFS may increase or decrease the retention limit for any size class of BFT based on consideration of the criteria provided under § 635.27(a)(8), which include: The usefulness of information obtained from catches in the particular category for biological sampling and monitoring of the status of the stock (§ 635.27(a)(8)(i)); effects of the adjustment on BFT rebuilding and overfishing (§ 635.27(a)(8)(v)); effects of the adjustment on accomplishing the objectives of the 2006 Consolidated HMS FMP (§ 635.27(a)(8)(vi)); variations in seasonal BFT distribution, abundance, or migration patterns (§ 635.27(a)(8)(vii)); effects of catch rates in one area precluding vessels in another area from having a reasonable opportunity to harvest a portion of the category's quota (§ 635.27(a)(8)(viii)); and a review of daily landing trends and availability of the BFT on the fishing grounds (§ 635.27(a)(8)(ix)). Retention limits may be adjusted separately for specific vessel type, such as private vessels, headboats, or charterboats.

NMFS has considered the set of criteria at § 635.27(a)(8) and their applicability to the Angling category BFT retention limit for the 2014 Angling category fishery. These considerations include, but are not limited to, the following: This action, which is taken consistent with the quotas previously established and analyzed in the 2011 BFT quota final rule (76 FR 39019, July 5, 2011) and consistent with objectives of the 2006 Consolidated HMS FMP, is not expected to negatively impact stock health. Biological samples collected from BFT landed by recreational fishermen continue to provide NMFS with valuable parts and data for ongoing scientific studies of BFT age and growth, migration, and reproductive status. A principal consideration is the objective of providing opportunities to harvest the Angling category quota without exceeding it based upon the 2006 Consolidated HMS FMP goal: “Consistent with other objectives of this FMP, to manage Atlantic HMS fisheries for continuing optimum yield so as to provide the greatest overall benefit to the Nation, particularly with respect to food production, providing recreational opportunities, preserving traditional fisheries, and taking into account the protection of marine ecosystems.” It is also important that NMFS constrain landings to BFT subquotas both to adhere to the current FMP quota allocations and to ensure that landings are as consistent as possible with the pattern of fishing mortality (e.g., fish caught at each age) that was assumed in the projections of stock rebuilding.

Given the considerations above, NMFS has determined that the Angling category retention limit applicable to participants on HMS Angling and HMS Charter/Headboat category permitted vessels should be adjusted from the default level, and that implementation of separate limits for private and charter/headboat vessels is appropriate, recognizing the different nature, socio-economic needs, and recent landings results of the two components of the recreational BFT fishery. For example, charter operators historically have indicated that a multi-fish retention limit is vital to their ability to attract customers. In addition, Large Pelagics Survey estimates indicate that charter/headboat BFT landings averaged approximately 30 percent of recent recreational landings for 2011 through 2013, with the remaining 70 percent landed by private vessels.

Therefore, for private vessels (i.e., those with HMS Angling category permits), the limit is one school BFT and one large school/small medium BFT per vessel per day/trip (i.e., one BFT measuring 27 to less than 47 inches, and one BFT measuring 47 to less than 73 inches). For charter vessels (i.e., those with HMS Charter/Headboat permits), the limit is two school BFT and one large school/small medium BFT per vessel per day/trip when fishing recreationally for BFT (i.e., two BFT measuring 27 to less than 47 inches, and one BFT measuring 47 to less than 73 inches). These retention limits are effective in all areas, except for the Gulf of Mexico, where NMFS prohibits targeted fishing for BFT. Regardless of the duration of a fishing trip, the daily retention limit applies upon landing.

NMFS anticipates that the BFT daily retention limits in this action will result in landings during 2014 that would not exceed the available subquotas as codified in 2011. Lower retention limits could result in substantial underharvest of the codified Angling category subquota, and increasing the daily limits further may risk exceeding the available quota, contrary to the objectives of the 2006 Consolidated HMS FMP. NMFS will monitor 2014 landings closely and will make further adjustments, including closure, with an inseason action if warranted.

This Angling category action is intended to provide a reasonable opportunity to harvest the U.S. quota of BFT without exceeding it, while maintaining an equitable distribution of fishing opportunities; and to be consistent with the objectives of the 2006 Consolidated HMS FMP.

HMS Angling and HMS Charter/Headboat category permit holders may catch and release (or tag and release) BFT of all sizes, subject to the requirements of the catch-and-release and tag-and-release programs at § 635.26. Anglers are also reminded that all BFT that are released must be handled in a manner that will maximize survival, and without removing the fish from the water, consistent with requirements at § 635.21(a)(1). For additional information on safe handling, see the “Careful Catch and Release” brochure available at www.nmfs.noaa.gov/sfa/hms/.

If needed, subsequent Angling category adjustments will be published in the Federal Register. In addition, fishermen may call the Atlantic Tunas Information Line at (888) 872-8862 or (978) 281-9260, or access hmspermits.noaa.gov, for updates.

Classification

The Assistant Administrator for NMFS (AA) finds that it is impracticable and contrary to the public interest to provide prior notice of, and an opportunity for public comment on, this action for the following reasons:

The regulations implementing the 2006 Consolidated HMS FMP provide for inseason retention limit adjustments to respond to the unpredictable nature of BFT availability on the fishing grounds, the migratory nature of this species, and the regional variations in the BFT fishery. Based on available BFT quotas, fishery performance in recent years, the availability of BFT on the fishing grounds, among other considerations, an adjustment to the recreational BFT daily retention limit from the default level is warranted. Analysis of available data shows that adjustment to the BFT daily retention limit from the default level would result in minimal risks of exceeding the ICCAT-allocated quota. NMFS provides notification of retention limit adjustments by publishing the notice in the Federal Register, emailing individuals who have subscribed to the Atlantic HMS News electronic newsletter, and updating the information posted on the Atlantic Tunas Information Line and on hmspermits.noaa.gov.

These fisheries are currently underway and delaying this action would be contrary to the public interest. Delays in increasing the daily recreational BFT retention limit would adversely affect those HMS Angling and Charter/Headboat category vessels that would otherwise have an opportunity to harvest more than the default retention limit of one school, large school, or small medium BFT per day/trip and may exacerbate the problem of low catch rates and quota rollovers. Therefore, the AA finds good cause under 5 U.S.C. 553(b)(B) to waive prior notice and the opportunity for public comment. For all of the above reasons, there is good cause under 5 U.S.C. 553(d) to waive the 30-day delay in effectiveness.

This action is being taken under § 635.23(b)(3), and is exempt from review under Executive Order 12866.

This proposed rule invites comments on revisions to the procedure currently prescribed for issuing additional allotment base for Class 1 (Scotch) and Class 3 (Native) spearmint oil to new and existing producers under the Far West spearmint oil marketing order (order). The order regulates the handling of spearmint oil produced in the Far West and is administered locally by the Spearmint Oil Administrative Committee (Committee). This action would: Reduce the number of new producers that are issued additional allotment bases each year from three to two, for each class of oil; temporarily change the method by which additional allotment base is allocated to existing producers to take into account small production operations; and amend the requirements for eligibility, retention, and transfer of additional allotment base issued to new and existing producers. Revising the procedure for issuing additional allotment base would help ensure that new and existing spearmint oil producers have sufficient allotment base to be economically viable in the future.

DATES:

Comments must be received by May 21, 2014.

ADDRESSES:

Interested persons are invited to submit written comments concerning this proposed rule. Comments must be sent to the Docket Clerk, Marketing Order and Agreement Division, Fruit and Vegetable Program, AMS, USDA, 1400 Independence Avenue SW., STOP 0237, Washington, DC 20250-0237; Fax: (202) 720-8938; or Internet: http://www.regulations.gov. All comments should reference the document number and the date and page number of this issue of the Federal Register and will be made available for public inspection in the Office of the Docket Clerk during regular business hours, or can be viewed at: http://www.regulations.gov. All comments submitted in response to this proposal will be included in the record and will be made available to the public. Please be advised that the identity of the individuals or entities submitting the comments will be made public on the internet at the address provided above.

This proposal is issued under Marketing Order No. 985 (7 CFR part 985), as amended, regulating the handling of spearmint oil produced in the Far West (Washington, Idaho, Oregon, and designated parts of Nevada and Utah), hereinafter referred to as the “order.” The order is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

The Department of Agriculture (USDA) is issuing this proposed rule in conformance with Executive Orders 12866, 13563, and 13175.

This proposal has been reviewed under Executive Order 12988, Civil Justice Reform. This proposed rule is not intended to have retroactive effect.

The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. A handler is afforded the opportunity for a hearing on the petition. After the hearing, USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.

This proposal invites comments on revisions to the procedure currently prescribed for issuing additional allotment base for Class 1 (Scotch) and Class 3 (Native) spearmint oil to new and existing producers under the order's volume control provisions. This proposal would: (1) Reduce the number of allocations of additional allotment base issued to new producers each year from three to two, for each class of oil; (2) temporarily change the method by which additional allotment base is issued to existing producers in order to take into account producers whose total allotment base is below the size of the minimum economic enterprise (MEE) required to produce each class of spearmint oil; (3) provide that additional allotment base issued to existing producers under the revised procedure could not be used to replace allotment base that has been previously transferred away; and (4) provide that additional allotment base issued under the revised procedure could not be transferred to another producer for at least five years following issuance. This action was recommended unanimously by the Committee at a meeting on November 6, 2013.

Under the order, volume control measures are authorized to regulate the marketing of spearmint oil. Regulation is currently effectuated through the issuance of allotment bases to producers, the establishment of annual salable quantities and allotment percentages, and the reserve pooling of excess production. Allotment base is each producer's quantified share of the spearmint oil market based on a statistical representation of past spearmint oil production, with accommodation for reasonable and normal adjustments to such base. The order's provisions allow for the regulation of spearmint oil volume available to the market. The objective of regulation is to establish orderly marketing conditions for spearmint oil and to ensure that there is sufficient spearmint oil supply available to meet market requirements. Since the program's inception, volume regulation has been instrumental in promoting market and price stability within the industry.

The order contains provisions to ensure that there is orderly market expansion and that new producers are able to produce and market spearmint oil. Section 985.53(d)(1) of the order requires the Committee to annually make additional allotment bases available for each class of oil in the amount of no more than 1 percent of the total allotment base for that class of oil. Fifty percent of these additional allotment bases shall be made available to new producers and 50 percent made available to existing producers.

Section 985.53(d)(3) requires the Committee, with the approval of the Secretary, to establish rules and regulations to be used for determining the distribution of additional allotment bases. In 1982, these rules and regulations were established and have been subsequently revised on several occasions, most recently in 2003. Each time a revision is made, the Committee considers several important factors which include: the size of the MEE required for spearmint oil production, the applicant's ability to produce spearmint oil, the area where the spearmint oil will be produced, and other economic and marketing factors that have a direct impact on spearmint oil producers. The Committee reviews regularly, and updates as needed, the size of the MEE required for spearmint oil production. Under the order, MEE is the minimum size of production operation that the Committee has determined to be economically viable for each class of spearmint oil. Between 1982 and 1997, the Committee revised the MEE for Scotch spearmint oil production three times and Native spearmint oil production four times. As a result, the MEE increased from 1,200 pounds to 3,000 pounds for Scotch spearmint oil, and from 1,800 pounds to 3,400 pounds for Native spearmint oil.

Section 985.153(c)(1) of the order's administrative rules and regulations prescribes the method by which additional allotment base is issued to new producers. In addition, § 985.153(c)(2) prescribes the procedure by which additional allotment base is issued to existing producers. Lastly, § 985.153(d) specifies certain requirements for spearmint oil producers who are issued additional allotment base pursuant to § 985.153(c)(1) and (c)(2).

The Committee met on November 6, 2013, to consider the current procedures for issuing additional allotment base to new and existing producers and to make recommendations regarding the revision of those procedures. As required by § 985.153(c)(1)(ii), the Committee first considered the size of the MEE required to produce each class of spearmint oil. The Committee determined that the MEE levels for both classes of spearmint oil were no longer representative and needed to be revised. The Committee recognized that, as production and cultural practices for spearmint oil have continued to change and production costs per acre have increased, the Committee's previously established MEE levels are too low and should be revised. As such, the Committee concluded that the MEE thresholds had increased to 5,121 pounds for Scotch spearmint oil and 5,812 pounds for Native spearmint oil.

As a result of the Committee's determination that the MEE thresholds have increased, and given the quantity of additional allotment base available to new producers each year (1/2 of 1 percent of the total allotment base for each class of oil), the additional allotment base issued each year is only enough for two new producers, instead of three, for each class of oil.

The Committee's initial calculation is that the total allotment base for Scotch spearmint oil during the 2014-2015 marketing year will be approximately 2,089,146 pounds. One half of one percent of this amount would be 10,445 pounds. With the MEE for Scotch spearmint oil determined to be 5,121 pounds, issuing allotment base to two new producers would require 10,242 pounds, which is within the amount of additional allotment base that would be available for the year.

Likewise, the Committee's initial calculation is that the total allotment base for Native spearmint oil during the 2014-2015 marketing year will be approximately 2,371,350 pounds. One half of one percent of this amount would be 11,856 pounds. With the MEE for Native spearmint oil determined to be 5,812 pounds, issuing allotment base to two new producers would require 11,624 pounds, which is within the amount of additional allotment base that would be available for the year.

Based on the above information, the Committee unanimously recommended reducing the number of new producers that would be issued additional allotment base each year from three to two for each class of oil. The Committee also recommended that the additional allotment base issued to new producers not be transferrable for at least five years following issuance. The current retention period prior to transferability is two years. New producers issued additional allotment base under this proposal would continue to be required to submit evidence of an ability to produce and sell oil from such allotment base in the first marketing year following issuance of such base.

The Committee also gave consideration to existing producers with regards to the size of the MEE required to produce spearmint oil and the allocation of additional allotment base. After analyzing the Committee's records, the Committee found that some existing producers hold allotment bases that are below the revised MEE levels. As a result, the Committee unanimously recommended that the additional allotment base that is made available each year to existing producers be temporarily allocated first to those eligible producers who hold allotment bases that are less than the MEE threshold in order to bring their total up to that level.

Under the proposal, existing Scotch spearmint oil producers whose allotment bases are less than 5,121 pounds as of October 17, 2012, who apply and who have the ability to produce additional quantities of spearmint oil, would be issued sufficient additional allotment base to bring them up to the MEE threshold over a three-year period extending through the 2016-2017 marketing year. In addition, existing Native spearmint oil producers who hold allotment bases of less than 5,812 pounds as of October 17, 2012, who apply and who have the ability to produce additional quantities of spearmint oil, would be issued sufficient additional allotment base to bring them up to the MEE threshold over a four-year period extending through the 2017-2018 marketing year.

The Committee estimates there would be 21 producers of Scotch spearmint oil and 30 producers of Native spearmint oil eligible for additional allotment base under the proposal. It is expected that eligible existing producers of both Scotch and Native spearmint oil would apply for the full amount of additional allotment base made available to them. If there is any unallocated additional allotment base remaining for either Scotch spearmint oil during the 2016-2017 marketing year, or Native spearmint oil during the 2017-2018 marketing year, such amount would be distributed on a prorated basis among all existing producers of each respective class of spearmint oil.

The Committee also recommended that additional allotment base issued to producers under the proposed revised procedure should not be used to replace allotment base that has been previously transferred away by that producer and that additional allotment base issued under the revised procedure not be transferrable for at least five years following issuance.

Since the establishment of the order, one of the Committee's primary objectives has been to help ensure that all spearmint oil producers are economically viable, as evidenced by holding allotment bases that are above the minimum economic threshold required for spearmint oil production. The Committee has worked to meet this objective by regularly determining the size of the MEE and issuing additional allotment base accordingly. Specifically, the Committee has raised the quantity of allotment base issued to new producers, and increased the allotment bases of those existing producers who hold allotment bases that are below the levels that comprise the minimum economic threshold required for spearmint oil production.

Another Committee objective has been to issue as many additional allotment bases as possible to new producers, at levels considered economically viable to each recipient. However, since the order limits the amount of additional allotment base issued to new producers, and because the size of the MEE required for spearmint oil production must be considered, the Committee has found it necessary to limit the number of new producers that are issued additional allotment base each year. Therefore, given the circumstances, the Committee believes the combination of these actions provides the best method available for optimizing the number of new producers that enter and remain in business, and also helps assure that there will continue to be a broad base of spearmint oil production.

The procedure for issuing additional allotment base to new and existing producers has been modified several times since the inception of the order. Between 1982 and 1991, the entire Far West spearmint oil production area was treated as a single region for the purpose of issuing additional allotment base to new producers. The Committee would determine the size and number of economic enterprises of additional allotment base for each class of spearmint oil to be made available to new producers. The additional allotment bases were then issued to new producers drawn from the lot of eligible individuals who had requested additional allotment base.

In 1991, the order's administrative rules and regulations were modified through the rulemaking process to divide the production area into four regions for purposes of issuing additional allotment base to new producers. An equal number of allotment bases were issued to new producers in each region based on the amount of additional allotment base available and the MEE determined by the Committee. Based on the Committee's determinations, this effectively allowed one new producer annually from each of the four regions to be issued additional allotment base, for each class of spearmint oil.

Again in 1997, rulemaking action was taken to reorganize and reduce the number of regions within the Far West production area from four to three. This revision had the effect of reducing the number of new producers that were issued additional allotment bases each year from four to three for each class of spearmint oil. The Committee recommended the revision with the purpose of distributing additional allotment bases within the production area, and to increase the size of allotment bases issued to new producers to correspond to the size of the MEE. The Committee had determined that the size of the MEE for spearmint oil production had increased to a point where there was insufficient additional allotment base to issue economically sufficient quantities of base to new producers in all four regions. By reorganizing and reducing the number of regions to three, there was adequate additional allotment base to issue base to three new producers of each class of spearmint oil. In reaching its recommendation, the Committee weighed the importance of issuing as many additional allotment bases as possible against the need to issue such bases at levels considered economically viable to each recipient.

In 2000, the three regions of the Far West production area were further reduced to two regions through the rulemaking process. However, the number of new producers issued additional allotment bases each year was maintained at three for each class of spearmint oil. As before, the Committee recommended the revision with the purpose of distributing additional allotment bases to new spearmint oil producers throughout the production area.

The proposal to reduce the number of new producers issued additional allotment base each year from three to two for each class of spearmint oil is consistent with previous rulemaking. The Committee's purpose, then and now, is to ensure that a maximum number of eligible new producers are issued additional allotment bases each year at levels that are economically viable to produce each class of spearmint oil.

Consistent with actions taken in the past, the Committee made the recommendation after carefully considering information available from its management records, Federal and state government sources, and industry participants. The Committee also considered the size of the MEE required for the production of each class of spearmint oil, historical statistics relating to the locations of the producers applying for the annual additional allotment base, and other factors, such as number of producers in the regulated production area and the amount of allotment base held by such producers. Based on its review, the Committee believes that the recommended action is the most effective option available in order to continue fulfilling the order's objectives.

Initial Regulatory Flexibility Analysis

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), the Agricultural Marketing Service (AMS) has considered the economic impact of this action on small entities. Accordingly, AMS has prepared this initial regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of businesses subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf.

There are eight spearmint oil handlers subject to regulation under the order. In addition, there are approximately 36 producers of Scotch spearmint oil and approximately 91 producers of Native spearmint oil in the regulated production area. Small agricultural service firms are defined by the Small Business Administration (SBA) (13 CFR 121.201) as those having annual receipts of less than $7,000,000, and small agricultural producers are defined as those having annual receipts of less than $750,000.

Based on the SBA's definition of small entities, the Committee estimates that two of the eight handlers regulated by the order could be considered small entities. Most of the handlers are large corporations involved in the manufacture and trade of essential oils and the products of essential oils in the international market. In addition, the Committee estimates that 19 of the 36 Scotch spearmint oil producers and 29 of the 91 Native spearmint oil producers could be classified as small entities under the SBA definition. Thus, many handlers and producers of Far West spearmint oil may not be classified as small entities.

The Far West spearmint oil industry is characterized by producers whose farming operations generally involve more than one commodity, and whose income from farming operations is not exclusively dependent on the production of spearmint oil. A typical spearmint oil-producing operation has enough acreage for rotation such that the total acreage required to produce the crop is about one-third spearmint and two-thirds rotational crops. Thus, the typical spearmint oil producer has to have considerably more acreage than is planted to spearmint during any given season. Crop rotation is an essential cultural practice in the production of spearmint oil for purposes of weed, insect, and disease control. To remain economically viable with the added costs associated with spearmint oil production, a majority of spearmint oil-producing farms fall into the SBA category of large businesses.

Small spearmint oil producers generally are not as extensively diversified as larger ones and, as such, are more at risk from market fluctuations. Such small producers generally need to market their entire annual allotment and do not have the luxury of having other crops to cushion seasons with poor spearmint oil returns. Conversely, large diversified producers have the potential to endure one or more seasons of poor spearmint oil markets because income from alternate crops could support the operation for a period of time. Being reasonably assured of a stable market and price provides small producing entities with the ability to maintain sufficient cash flow and to meet annual expenses. Thus, the market and price stability provided by the order potentially benefit small producers more than such provisions benefit large producers.

This proposal would revise the procedure for issuing additional allotment base by reducing the number of additional allotment bases issued to new producers from three to two, for each class of spearmint oil. In addition, this action would increase the required retention period prior to transferability of additional allotment base issued to new producers from two years to five years following issuance.

This proposal would also temporarily change the procedures for the allocation of additional allotment base by class to take into account existing producers that are below the MEE threshold. This revision is intended to help existing small spearmint oil producers by increasing their individual allotment bases to a level that approximates the MEE required for spearmint oil production. The action would help ensure that small existing spearmint oil producers have sufficient allotment base to remain economically viable in the future. Also, this proposal would provide that additional allotment base issued to existing small producers could not be used to replace allotment base which has been previously transferred away. Finally, this action would provide that additional allotment base issued under the revised procedure could not be transferred for at least five years following issuance. The proposed procedure revising the method by which additional allotment base is allocated to existing producers would be in effect temporarily through May 31, 2017, for Scotch spearmint oil, and May 31, 2018, for Native spearmint oil, or until all producers who are eligible and apply have received enough allotment base to bring them up to the respective MEE level for each class of oil. Authority for this action is provided in § 985.53(d)(3) of the order.

At the meeting on November 6, 2013, the Committee discussed the impact of the proposed revisions on handlers and producers in terms of costs and returns. Under the order, the Committee is responsible for determining the size of the MEE required to produce each class of spearmint oil. The Committee determined the MEE size for the 2014-2015 and subsequent marketing years to be 5,121 pounds for Scotch spearmint oil and 5,812 pounds for Native spearmint oil. Taking this information into consideration, the Committee calculated that the number of new producers issued additional allotment bases each year would need to be reduced from three to two for each class of oil. While this action would reduce the number of new producers issued additional allotment bases each year, each new producer would have a larger initial allotment base, thereby enhancing their long term economic viability in the spearmint oil industry.

Additionally, the Committee estimates there are 21 producers of Scotch spearmint oil whose allotment bases are below the MEE threshold and it would take a total of 21,913 pounds of additional allotment base to raise these producers' allotment bases up to the Scotch spearmint oil MEE threshold. Likewise, the Committee estimates there are also 30 producers of Native spearmint oil whose allotment bases are below the MEE level, and it would take a total of 43,456 pounds of additional allotment base to raise these producers' allotment bases to the size of the MEE required to produce Native spearmint oil.

While the amount of additional allotment base necessary to bring all spearmint oil producers' allotment bases up to the MEE threshold is a fraction of the total allotment base, the benefits of the proposed revision would be significant to these small producers, because it would improve their economic viability into the future. Without the revision, small spearmint oil producers are at a greater risk of not being able to continue to produce spearmint oil. Therefore, the benefits of this proposed rule are expected to be greater for small producers than for larger entities.

The Committee discussed several alternatives to the recommendations contained in this proposed rule, including not making any changes to the procedures as currently prescribed in the order. However, the Committee determined that not taking the MEE threshold into consideration when issuing additional base would have negative impacts primarily affecting new and existing small producers. The Committee concluded that the most effective option was to revise the procedure for issuing additional allotment base in order to improve the economic viability of new and existing producers whose allotment bases are below the MEE threshold.

The Committee also considered alternative MEE thresholds before deciding on the levels that were most representative of the production economics for each class of spearmint oil. The Committee considers the size of the MEE for the production of each class of spearmint oil is accurate and appropriate given the information available.

In addition, the Committee considered the length of time that new and existing producers should be expected to hold onto additional allotment base issued under the proposed revised procedure before such allotment base could be transferred. The Committee considered other retention periods other than the proposed five years, including maintaining the current two year retention period. However, it concluded that a five year retention requirement prior to transfer of additional allotment base issued under the proposed revised procedure was a sufficient period for new and existing producers to demonstrate viability in spearmint oil production and should not present an undue hardship on the producers being issued the additional allotment base.

In its deliberations, the Committee considered all available information, including its determination of the size of the MEE required for spearmint oil production, historical statistics relating to the locations of the producers applying for the annual additional allotment base, and other factors such as the number of producers in the regulated production area and the amount of allotment base held by such producers. Based on those determinations, the full eight-member Committee unanimously recommended revising the procedure for issuing additional allotment base to new and existing spearmint oil producers, for each class of oil, as proposed herein.

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the order's information collection requirements is currently approved by the Office of Management and Budget (OMB) and assigned OMB No. 0581-0178, Generic Vegetable and Specialty Crops. Upon publication of the final rule, we will submit a Justification of Change to make minor modifications changing the appearance of two forms and adjusting the burden, accordingly.

AMS is committed to complying with the E-Government Act, to promote the use of the internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.

USDA has not identified any relevant Federal rules that duplicate, overlap or conflict with this proposed rule.

In addition, the Committee meetings were widely publicized throughout the spearmint oil industry and all interested persons were invited to attend the meetings and participate in Committee deliberations on all issues. Like all Committee meetings, the March 6, 2013, and the November 6, 2013, meetings were public meetings and all entities, both large and small, were able to express views on this issue. Finally, interested persons are invited to submit comments on this proposed rule, including the regulatory and informational impacts of this action on small businesses.

A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at: http://www.ams.usda.gov/MarketingOrdersSmallBusinessGuide. Any questions about the compliance guide should be sent to Jeffrey Smutny at the previously mentioned address in the FOR FURTHER INFORMATION CONTACT section.

A 15-day comment period is provided to allow interested persons to respond to this proposal. Fifteen days is deemed appropriate because: (1) The 2014-2015 fiscal period begins on June 1, 2014; (2) affected spearmint oil producers need to be informed as soon as possible of any changes in base allotment allocation in order to plan their plantings accordingly; and (3) spearmint oil producers are aware of this action, which was unanimously recommended by the Committee at a public meeting and is similar to previous actions recommended by the Committee and approved by the Secretary.

For the reasons set forth in the preamble, 7 CFR part 985 is proposed to be amended as follows:

PART 985—MARKETING ORDER REGULATING THE HANDLING OF SPEARMINT OIL PRODUCED IN THE FAR WEST1. The authority citation for 7 CFR part 985 continues to read as follows:Authority:

7 U.S.C. 601-674.

2. In § 985.153, redesignate and revise paragraphs (c)(1)(ii) as (c)(1)(iii) and (c)(2)(ii) as (c)(2)(iv), add new paragraphs (c)(1)(ii), (c)(2)(ii) and (c)(2)(iii), and revise paragraph (d) to read as follows:§ 985.153 Issuance of additional allotment base to new and existing producers.

(c) * * *

(1) * * *

(ii) The Committee shall review all requests from new producers for additional allotment base made available pursuant to § 985.53(d)(1).

(iii) Each year, the Committee shall determine the size of the minimum economic enterprise required to produce each class of oil. The Committee shall thereafter calculate the number of new producers who will receive allotment base under this section for each class of oil. The Committee shall include that information in its announcements to new producers in each region informing them when to submit requests for allotment base. The Committee shall determine whether the new producers requesting additional base have the ability to produce spearmint oil. The names of all eligible new producers from each region shall be placed in separate lots per class of oil. For each class of oil, separate drawings shall be held from a list of all applicants from Region A and from a list of all applicants from Region B. If, in any marketing year, there are no requests for additional base in a class of oil from eligible new producers in a region, such unallocated additional allotment base shall be issued to an eligible new producer whose name is selected by drawing from a list containing the names of all remaining eligible new producers from the other region for that class of oil. The Committee shall immediately notify each new producer whose name was drawn and issue that producer an allotment base in the appropriate amount. Allotment base issued to new producers under this section shall not be transferred for at least five years following issuance.

(2) * * *

(ii) Class 1 base. With respect to the issuance of additional Class 1 allotment base to existing producers for the 2014-2015 through the 2016-2017 marketing years, existing producers with less than 5,121 pounds of allotment base as of October 17, 2012, who request additional allotment base and who have the ability to produce additional quantities of Class 1 spearmint oil, shall be issued additional allotment base sufficient to bring them up to a level not to exceed 5,121 pounds: Provided, That such additional Class 1 allotment base shall be allocated to eligible producers on a pro-rata basis from available additional Class 1 allotment base: Provided further, That additional allotment base shall not be issued to any person if such additional allotment base would replace all or part of an allotment base that such person has previously transferred to another producer. Additional allotment base in excess of the amount needed to bring eligible producers up to 5,121 pounds of Class 1 allotment base shall be distributed on a prorated basis among all existing producers who apply and who have the ability to produce additional quantities of spearmint oil.

(iii) Class 3 base. With respect to the issuance of additional Class 3 allotment base for existing producers for the 2014-2015 through the 2017-2018 marketing years, existing producers with less than 5,812 pounds of allotment base as of October 17, 2012, who request additional allotment base and who have the ability to produce additional quantities of Class 3 spearmint oil, shall be issued additional allotment base sufficient to bring them up to a level not to exceed 5,812 pounds: Provided, That such additional Class 3 allotment base shall be allocated to eligible producers on a pro-rata basis from available additional Class 3 allotment base: Provided further, That additional allotment base shall not be issued to any person if such additional allotment base would replace all or part of an allotment base that such person has previously transferred to another producer. Additional allotment base in excess of the amount needed to bring eligible producers up to 5,812 pounds of Class 3 allotment base shall be distributed on a prorated basis among all existing producers who apply and who have the ability to produce additional quantities of spearmint oil.

(iv) For each marketing year after 2016-2017 for Class 1 oil and 2017-2018 for Class 3 oil, each existing producer of a class of spearmint oil who requests additional allotment base, and who has the ability to produce additional quantities of that class of spearmint oil, shall be eligible to receive a share of the additional allotment base issued for that class of oil. Additional allotment base issued by the Committee for a class of oil shall be distributed on a prorated basis among the eligible producers for that class of oil. The Committee shall immediately notify each producer who is to receive additional allotment base by issuing that producer an allotment base in the appropriate amount. Allotment base issued to existing producers under this section shall not be transferred for at least two years following issuance, except that additional allotment base allocated pursuant to paragraph (c)(2)(ii) and (c)(2)(iii) of this section shall not be transferred for at least five years following issuance.

(d) The person receiving additional allotment base pursuant to this section shall submit to the Committee evidence of an ability to produce and sell oil from such allotment base in the first marketing year following issuance of such base.

The U.S. Nuclear Regulatory Commission (NRC) is proposing to amend its regulations to certify the Economic Simplified Boiling-Water Reactor (ESBWR) standard plant design. The proposed ESBWR design certification rule was published for public comment on March 24, 2011. The NRC is publishing this supplemental proposed rule to provide an opportunity for the public to comment on two matters. The first is proposed changes related to the analysis methodology supporting the ESBWR steam dryer design that were made after the close of the public comment period for the proposed ESBWR design certification rule. The second is the NRC's proposed clarification of its intent to treat 50 referenced documents within Revision 10 of the ESBWR design control document (DCD) as requirements and matters resolved in subsequent licensing and enforcement actions for plants referencing the ESBWR design certification. In addition, the supplemental proposed rule clarifies that the NRC intends to obtain approval for incorporation by reference from the Director of the Office of the Federal Register for the generic DCD and 20 publicly-available documents that are referenced in the DCD that are intended by the NRC to be requirements. The supplemental proposed rule does not offer an opportunity for public comment on this clarification of the NRC's intent. Finally, the supplemental proposed rule updates the version of the DCD (from Revision 9 to Revision 10) which the NRC proposes to obtain approval for incorporation by reference from the Office of the Federal Register. Revision 10 of the DCD was needed to address the previously described matters. The applicant for certification of the ESBWR design is GE-Hitachi Nuclear Energy (GEH).

DATES:

Submit comments by June 5, 2014. The NRC will not address any comments received after this date, except as discussed in Section I.B of the SUPPLEMENTARY INFORMATION section of this document.

ADDRESSES:

You may submit comments by any of the following methods (unless this document describes a different method for submitting comments on a specific subject):

For additional direction on obtaining information and submitting comments, see “Obtaining Information and Submitting Comments” in the SUPPLEMENTARY INFORMATION section of this document.

FOR FURTHER INFORMATION CONTACT:

George M. Tartal, telephone: 301-415-0016, email: George.Tartal@nrc.gov; or David Misenhimer, telephone: 301-415-6590, email: David.Misenhimer@nrc.gov. Both of the Office of New Reactors, U.S. Nuclear Regulatory Commission, Washington DC 20555-0001.

Please refer to Docket ID NRC-2010-0135 when contacting the NRC about the availability of information for this action. You may access publicly-available information related to this action by any of the following methods:

• NRC's Agencywide Documents Access and Management System (ADAMS): You may access publicly-available documents online in the NRC Library at http://www.nrc.gov/reading-rm/adams.html. To begin the search, select “ADAMS Public Documents” and then select “Begin Web-based ADAMS Search.” For problems with ADAMS, please contact the NRC's Public Document Room (PDR) reference staff at 1-800-397-4209, 301-415-4737, or by email to pdr.resource@nrc.gov. The ADAMS accession number for each document referenced in this document (if that document is available in ADAMS) is provided the first time that a document is referenced.

The documents identified in Table 1, relating to the changes associated with the analysis methodology supporting the ESBWR steam dryer design, are available to interested persons who wish to comment on the proposed changes. Some of the documents in Table 1 have two versions: a version which is publicly-available, and the (original and complete) version which is not publicly available because it contains information which is proprietary. If you need to obtain access to the non-public version of a document in order to provide comments on the proposed changes to the analysis methodology supporting the ESBWR steam dryer design, please follow the process described in Section X of the SUPPLEMENTARY INFORMATION section of this document. Before requesting access to the non-public version of any document, please obtain the publicly-available version of the document to verify if the information in the publicly-available version of a document is sufficient to allow you to comment on the proposed changes to the analysis methodology supporting the ESBWR steam dryer design.

In addition to Revision 10 of the ESBWR DCD, the non-public versions of the 50 documents identified in Table 2 are documents which the NRC regards as requirements and are matters resolved under Paragraph VI, ISSUE RESOLUTION, of the ESBWR Design Certification Rule. The documents in Table 2 are available to interested persons who wish to comment on the NRC's proposed clarification of its intent to treat these non-public documents as requirements and matters resolved in subsequent licensing and enforcement actions for plants referencing the ESBWR design certification. The NRC notes that three of the documents in Table 2 related to the ESBWR steam dryer are the same documents described in Section III.A and listed in Table 1 of the SUPPLEMENTARY INFORMATION section of this document. Accordingly, the NRC regards these three documents as requirements and are matters resolved under Paragraph VI, ISSUE RESOLUTION, of the ESBWR Design Certification Rule.

All of the documents in Table 2 have two versions: A version which is publicly-available, and the (original and complete) version which is not publicly available because it contains information which is either Sensitive Unclassified Non-Safeguards Information (SUNSI) (including SUNSI constituting “proprietary information” 1), or Safeguards Information (SGI) under Section 147 of the Atomic Energy Act of 1954, as amended. If you need to obtain access to the non-public document in order to provide comments on the NRC's proposed clarification of its intent to treat the 50 documents in Table 2 as matters resolved in subsequent licensing and enforcement actions for plants referencing the ESBWR design certification, please follow the process described in Section X of the SUPPLEMENTARY INFORMATION section of this document. Before requesting access to any non-public document, please obtain the publicly-available version of the document to verify if the information in the publicly-available version of a document is sufficient to allow you to comment on the NRC's proposed clarification of its intent to treat the 50 documents in Table 2 as matters resolved in subsequent licensing and enforcement actions for plants referencing the ESBWR design certification.

1 For purposes of this discussion, “proprietary information” constitutes trade secrets or commercial or financial information that are privileged or confidential, as those terms are used under the Freedom of Information Act and the NRC's implementing regulation at part 9 of Title 10 of the Code of Federal Regulations.

Throughout the development of the ESBWR design certification rule, the NRC may post additional documents related to this rule, including public comments, on the Federal rulemaking Web site at http://www.regulations.gov under Docket ID NRC-2010-0135. The Federal rulemaking Web site allows you to receive alerts when changes or additions occur in a docket folder. To subscribe: (1) Navigate to the docket folder (NRC-2010-0135); (2) click the “Sign up for Email Alerts” link; and (3) enter your email address and select how frequently you would like to receive emails (daily, weekly, or monthly).

Documents that are not publicly available because they are considered to be SUNSI or SGI may be available to interested persons who may wish to comment on the changes associated with the analysis methodology supporting the ESBWR steam dryer design. Such persons shall follow the procedures described in Section X of the SUPPLEMENTARY INFORMATION section of this document in order to obtain access to those documents.

B. Additional Information on Submitting CommentsGeneral Information

Please include Docket ID NRC-2010-0135 in the subject line of your comment submission, in order to ensure that the NRC is able to make your comment submission available to the public in this docket.

The NRC cautions you not to include identifying or contact information that you do not want to be publicly disclosed in your comment submission. The NRC will post all comment submissions at http://www.regulations.gov as well as enter the comment submissions into ADAMS. The NRC does not routinely edit comment submissions to remove identifying or contact information.

If you are requesting or aggregating comments from other persons for submission to the NRC, then you should inform those persons not to include identifying or contact information that they do not want to be publicly disclosed in their comment submission. Your request should state that the NRC does not routinely edit comment submissions to remove such information before making the comment submissions available to the public or entering the comment into ADAMS.

Comments Based Upon a Review of Non-Public Documents Obtained Under the Procedures in Section X of the SUPPLEMENTARY INFORMATION Section of This Document

The NRC strongly encourages commenters, submitting comments based upon a review of non-public documents to which the commenter obtained access under the procedures in Section X of the SUPPLEMENTARY INFORMATION section of this document, to avoid submitting comments with non-public information derived from those non-public documents. In many cases, effective arguments may be presented by referring to the location of relevant information in those documents. In other cases, a summary of the key information in the document, and a reference to the portion of the document supporting the comment, will provide adequate basis for the comment without disclosing non-public information. However, if the comment must include non-public information, the commenter must submit the comments in accordance with § 2.390 of Title 10 of the Code of Federal Regulations (10 CFR). The NRC recommends preparing two versions of your comment submission—one public and one non-public, and submitting an affidavit with your comment submission explaining, with specificity, why the information in your comment submission should be regarded as non-public.

Scope of Comments

The NRC is limiting the scope of the supplemental proposed rule to two areas, which are further discussed in Section III of the SUPPLEMENTARY INFORMATION section of this document:

• Proposed changes related to the analysis methodology supporting the ESBWR steam dryer design that were made after the close of the public comment period for the proposed ESBWR design certification rule (76 FR 16549; March 24, 2011).

• The NRC's proposed clarification of its intent to treat 50 non-public documents referenced in the ESBWR DCD as requirements and matters resolved in subsequent licensing and enforcement actions for plants referencing the ESBWR design certification.

The NRC will not address in a final rule any comments submitted that are outside the scope of this supplemental proposed rule. For example, comments on Revision 10 of the ESBWR DCD which do not relate to the changes in the analysis methodology supporting the ESBWR steam dryer design which were made after the close of the public comment period for the proposed ESBWR design certification rule, would be regarded as outside the scope of the commenting opportunity with respect to the steam dryer analysis methodology.

The NRC notes that some of the documents listed in Tables 1 and 2 in Section I.A of the SUPPLEMENTARY INFORMATION section of this document contain SUNSI, SGI, or proprietary information and, therefore, are not publicly available. For each of those non-publicly available documents, GEH has created a publicly-available version of the document. If a commenter needs to review the material in a non-publicly available document in order to submit comments, the commenter should first review the publicly-available version of the document. If the commenter determines, after reviewing the publicly-available version, that access to the non-public document is needed in order to provide meaningful comments within the scope of comments as previously described, then the commenter should seek access to the non-public document in accordance with the procedures in Section X of the SUPPLEMENTARY INFORMATION section of this document.

Late-filed Comments

The NRC will not be obligated to address any comments received after June 5, 2014, nor will the NRC entertain any requests for extension of the public comment period unless the commenter is approved to access SUNSI or SGI as described in Section X of the SUPPLEMENTARY INFORMATION section of this document, because of the substantial delays in the ESBWR rulemaking. If a commenter is approved to access SUNSI or SGI, the public comment period will be extended exclusively for that commenter, but limited to the matters for which access to SUNSI or SGI is necessary to make informed comments.

II. BackgroundESBWR Design Certification and March 2011 Proposed Rule

Subpart B of 10 CFR part 52 sets forth the process for obtaining standard design certifications. On August 24, 2005 (70 FR 56745; September 28, 2005), in accordance with subpart B of 10 CFR part 52, GEH submitted its application for certification of the ESBWR standard plant design to the NRC. The NRC formally accepted the application as a docketed application for design certification (Docket No. 52-010) on December 1, 2005 (70 FR 73311; December 9, 2005). The pre-application information submitted before the NRC formally accepted the application can be found in ADAMS under Docket No. PROJ0717 (Project No. 717).

On March 24, 2011 (76 FR 16549), the NRC published a proposed rule that would certify the ESBWR design in the Commission's regulations. The public comment period closed on June 7, 2011. The NRC received six comment submissions from members of the public. In addition, on September 9, 2011, the Commission issued a Memorandum and Order, CLI-11-05, 74 NRC 141, referring these comment submissions to the NRC staff for consideration as comments on the proposed ESBWR design certification rule. Id. at 176.

Issues on the Analytical Methodology for Design of the ESBWR Steam Dryer

Following the close of the public comment period on the proposed ESBWR design certification rule, the NRC staff identified issues applicable to the ESBWR steam dryer structural analysis. These issues were the result of NRC consideration of information obtained during the NRC's review of a license amendment request for a power uprate at an operating boiling-waterreactor (BWR) nuclear power plant. As this BWR power uprate used the same methodology for steam dryer analysis as was being proposed for the ESBWR, the NRC staff needed to resolve these issues before moving forward with the ESBWR design. The NRC informed GEH by letter dated January 19, 2012 (ADAMS Accession No. ML120170304), that it identified issues “relevant to the conclusions in its Final Safety Evaluation Report (FSER) [ADAMS Accession No. ML103070392] issued in support of the ESBWR [design certification] rulemaking. Specifically, errors have been identified in the benchmarking GEH used as a basis for determining fluctuating pressure loads on the steam dryer, and errors have been identified in a number of GEH's modeling parameters. These errors may affect the conclusions in the staff's FSER and need to be addressed before we complete the ESBWR [design certification].” Consequently, the NRC staff informed GEH that the rulemaking was on hold until the errors were adequately addressed.

In March 2012, the NRC staff conducted an audit of the GEH steam dryer analysis methodology at the GEH facility in Wilmington, North Carolina. In addition, in April 2012, the NRC staff performed a vendor inspection at that facility of the quality assurance program for GEH engineering methods. As a result of the audit and inspection, the NRC staff submitted requests for additional information (RAIs) to support a supplemental FSER. In addressing these RAIs, GEH made a number of significant changes in Revision 10 to the ESBWR DCD and in the supporting documentation. Those changes did not result in modifications to the overall design of the steam dryer but did result in replacing relevant sections in the DCD, withdrawing referenced licensing topical reports (LTRs) and replacing them with new engineering reports, designating the new engineering reports as Tier 2* information, and adding new Inspections, Tests, Analyses, and Acceptance Criteria (ITAAC). References to publicly-available documents associated with the development of the supplemental FSER, including RAIs and responses, public meeting notices and summaries, etc., are listed in the NRC's supplemental FSER (ADAMS Accession No. ML14043A134). Because these changes to the ESBWR steam dryer description in the DCD and supporting documentation occurred after the close of the public comment opportunity on the proposed ESBWR design certification rule, the NRC is publishing this supplemental proposed rule to provide an opportunity for public comment on these changes.

The NRC notes that GEH made several other changes in Revision 10 to the ESBWR DCD which are not related to the ESBWR steam dryer analysis methodology. The NRC is not providing an opportunity for public comments on these other changes, and the NRC will explain in a final ESBWR design certification rule why these additional ESBWR DCD changes did not require a supplemental comment opportunity. The NRC will not be obligated to provide responses to any comments submitted in this supplemental comment opportunity which address matters unrelated to the changes to the ESBWR steam dryer analysis methodology.

III. Discussion

This section describes the changes that the NRC made to the proposed ESBWR design certification rule text and the changes GEH made to the analysis methodology supporting the ESBWR steam dryer design. A more detailed description of the changes to the analysis methodology and compliance with the NRC's regulations can be found in the NRC's supplemental FSER. This section also clarifies the NRC's intention that 50 non-public documents referenced in the ESBWR DCD are considered to be requirements and matters resolved under paragraph VI, ISSUE RESOLUTION, of the ESBWR design certification rule. This section also clarifies which documents would contain binding requirements for the ESBWR design and the NRC's intention to clarify in the final ESBWR design certification rule that these documents would be incorporated by reference.

Following the issuance of the FSER for the ESBWR design certification on March 9, 2011, the NRC staff identified issues applicable to the ESBWR steam dryer structural analysis based on information obtained during the NRC's review of a license amendment request for a power uprate at an operating BWR nuclear power plant. Consequently, the NRC staff communicated to GEH that it was concerned that the basis for its FSER on the ESBWR DCD and the safety evaluation reports on these topical reports was no longer valid. Specifically, errors were identified in the benchmarking GEH used as a basis for determining fluctuating pressure loading on the steam dryer, and errors were identified in a number of GEH's modeling parameters. The NRC staff subsequently issued RAIs and held multiple public meetings to identify issues and clarify the steam dryer analysis methodology. The NRC staff also conducted an audit of the GEH steam dryer analysis methodology at the GEH facility in Wilmington, North Carolina, in March 2012, and a vendor inspection at that facility of the quality assurance program for GEH engineering methods in April 2012.

To document the resolution of those issues, GEH revised the ESBWR DCD by removing references to the LTRs which address the ESBWR steam dryer structural evaluation and to reference new engineering reports that describe the updated ESBWR steam dryer analysis methodology. The following four LTRs were removed by GEH (public and proprietary versions cited):

The following DCD sections were revised by GEH to correct errors and provide additional information related to the design and evaluation of the structural integrity of the ESBWR reactors pressure vessel internals related to the steam dryer:

The revisions to these documents enhance the detailed design and evaluation process related to the structural integrity of the steam dryer in several ways. For example, the source of data used to benchmark the analysis methodology was changed in Revision 10 to the ESBWR DCD to a different operating nuclear power plant for which the NRC recently authorized an extended power uprate. In addition, the details of the design methodology were made more restrictive in several respects, including limiting the analysis method for fillet welds and using more conservative data and assumptions. The changes also designate additional information as Tier 2* and clarify regulatory process steps for completing the detailed design and startup testing of the ESBWR steam dryer, including COL information items to be satisfied by a COL applicant, ITAAC to be met by a COL licensee, and model license conditions that can be proposed by a COL applicant. References to the relevant documents associated with the changes made to the steam dryer analysis methodology are listed in Section I.A of the SUPPLEMENTARY INFORMATION section of this document.

The NRC staff has reviewed the revised ESBWR DCD sections, new GEH engineering reports, and RAI responses and prepared a supplemental FSER. The supplemental FSER concludes that Revision 10 to the ESBWR DCD and the referenced engineering reports provide sufficient information to support the adequacy of the design basis for the ESBWR reactor internals. The supplemental FSER also concludes that the design process for reactor internals is acceptable and meets the requirements of 10 CFR part 50, appendix A, General Design Criteria 1, 2, 4, and 10; 10 CFR 50.55a; and 10 CFR part 52. Finally, the supplemental FSER concludes that the ESBWR design documentation in Revision 10 to the ESBWR DCD is acceptable and that GEH's application for design certification meets the requirements of 10 CFR part 52, subpart B, that are applicable and technically relevant to the ESBWR standard plant design. The NRC concludes, based on the review of application materials in the March 2011 FSER and the supplemental FSER, that the ESBWR steam dryer design meets all applicable NRC requirements and can be incorporated by reference in a combined license application.

This supplemental proposed rule provides an opportunity to comment on the proposed changes related to the analysis methodology supporting the ESBWR steam dryer design. Documents relevant to the proposed changes related to the analysis methodology supporting the ESBWR steam dryer design are listed in Table 1, Section I.A of the SUPPLEMENTARY INFORMATION section of this document. The NRC notes that three of these documents are also listed in Table 2. These three non-publicly available documents—addressing the ESBWR steam dryer analysis methodology—are intended by the NRC to be requirements and matters resolved under Paragraph VI, ISSUE RESOLUTION, of the proposed ESBWR design certification rule. The status of the non-public documents identified in Table 2 as requirements and matters resolved is discussed in Section III.B of the SUPPLEMENTARY INFORMATION section of this document.

2. Designation of Revised Steam Dryer Analysis Methodology as Tier 2*

The NRC proposes to designate the revised ESBWR steam dryer analysis methodology as Tier 2* information throughout the life of any license referencing the ESBWR design certification rule. This is a change from Revision 9 of the ESBWR DCD, which identified much of this information (in its earlier form before the revisions reflected in Revision 10) as Tier 2. Therefore, the ESBWR steam dryer analysis methodology was not identified as Tier 2* information in the proposed ESBWR design certification rule under paragraph VIII.B.6.b of appendix E of 10 CFR part 52. References to the DCD are listed in Table 1, Section I.A of the SUPPLEMENTARY INFORMATION section of this document.

In this supplemental proposed rule, the NRC is proposing to designate the revised ESBWR steam dryer analysis methodology as Tier 2* for two reasons. First, as described in Section III.A.1 of the SUPPLEMENTARY INFORMATION section of this document, the NRC's experience with other applications using this methodology highlighted the importance of the proper application of the steam dryer analysis methodology. Therefore, the NRC believes that it is necessary to review any changes a referencing applicant or licensee proposes to the methodology from that which the NRC previously reviewed and approved. Second, in Revision 10 of the ESBWR DCD, GEH revised the designation of this methodology to Tier 2* and, therefore, the rule's designation would be consistent with the GEH's designation in the DCD.

This supplemental proposed rule provides an opportunity to comment on the proposed designation as Tier 2* of certain information related to the analysis methodology supporting the ESBWR steam dryer design. Documents relevant to the proposed designation as Tier 2* of certain information related to the analysis methodology supporting the ESBWR steam dryer design are also listed in Table 1, Section I.A of the SUPPLEMENTARY INFORMATION section of this document.

B. Clarification of 50 Non-Public Documents Which the NRC Regards as Requirements and Are Matters Resolved Under Paragraph VI, ISSUE RESOLUTION, of the ESBWR Design Certification Rule

In Tier 2, Section 1.6 of Revision 9 of the ESBWR DCD, GEH stated that a number of referenced documents are incorporated by reference, in whole or in part, in the ESBWR DCD Tier 2. Accordingly, the NRC questioned whether these documents contain binding requirements and whether they should also be incorporated by reference in the ESBWR design certification rule. The NRC reviewed these document references and determined that, while many of these documents do contain binding requirements and should be incorporated by reference, some of those documents do not contain binding requirements and therefore should be considered as references only.

To address the NRC's concerns, GEH revised Section 1.6 of Revision 10 of the ESBWR DCD to clearly identify documents containing requirements, and which documents are references which do not contain binding requirements. Table 1.6-1 of the DCD lists the GE and GEH documents which the NRC regards as requirements for the ESBWR design, and are, therefore, incorporated by reference into the ESBWR DCD. Table 1.6-2 of the DCD lists the non-GE and non-GEH documents which the NRC regards as requirements for the ESBWR design, and are, therefore, incorporated by reference into the ESBWR DCD. The NRC notes that GEH's incorporation by reference of the documents in Tables 1.6-1 and 1.6-2 into the ESBWR DCD is not the same as the Director of the Office of the Federal Register's approval of incorporation by reference under 1 CFR part 51. Table 1.6-3 of the DCD lists information which is general reference material and which the NRC does not consider to be a requirement of the ESBWR design certification rule. The documents in Table 1.6-3 of the DCD are not incorporated by reference into the ESBWR DCD by GEH, and the NRC does not intend to obtain approval from the Director of the Office of the Federal Register for incorporation by reference of the documents in Table 1.6-3 of the DCD.

The NRC also notes that many of these documents containing requirements also contain either SUNSI (proprietary information, and security-related information subject to non-disclosure under 10 CFR 2.390(a)(7)(vi)) or SGI. For each of these documents containing SUNSI or SGI there is a corresponding, publicly-available version. In this supplemental proposed rule, the NRC is clarifying that the NRC intends the 50 non-public documents in Table 2 of Section I.A of the SUPPLEMENTARY INFORMATION section of this document to be both requirements and matters resolved under paragraph VI, ISSUE RESOLUTION, of the ESBWR design certification rule.

C. Clarification of 20 Publicly-Available Documents Which the NRC Regards As Requirements and Are Matters Resolved Under Paragraph VI, ISSUE RESOLUTION, of the ESBWR Design Certification Rule

In Section III of the proposed ESBWR design certification rule (proposed appendix E to 10 CFR part 52), the NRC proposed that Revision 9 of the ESBWR DCD be the sole document which would be incorporated by reference, as a binding requirement, into the Commission's regulations for the ESBWR design certification. However, as previously described, after the proposed rule was issued and the public comment period had expired, the NRC determined that 20 documents listed in Table 1.6-1 of Revision 9 to the ESBWR DCD, publicly available in their entirety, were regarded by the NRC as requirements and matters resolved under Paragraph VI, ISSUE RESOLUTION, of the proposed ESBWR design certification rule. However, the NRC did not clearly identify in proposed paragraph III.A of the proposed ESBWR design certification rule identifying these publicly-available documents as approved by the Director of the Office of the Federal Register for incorporation by reference. The NRC is clarifying that it intends to obtain approval for incorporation by reference from the Director of the Office of the Federal Register under 1 CFR 51.9 for the 20 documents listed in Table 3 of Section III.C of the SUPPLEMENTARY INFORMATION section of this document.

Table 3—20 Publicly-Available Documents to be Approved for Incorporation by Reference Into the ESBWR Design Certification Rule (10 CFR part 52, appendix E) by the Director of the Office of the Federal Register.Document No.Document titleADAMS

NEDO-33411GE Hitachi Nuclear Energy, “Risk Significance of Structures, Systems and Components for the Design Phase of the ESBWR,” NEDO-33411, Class I (Non-proprietary), Revision 2, February 2010ML100610417

The NRC would obtain approval from the Director of the Office of the Federal Register for incorporation by reference of these documents before the NRC issues a final rule for the ESBWR design certification. Consistent with the Office of the Federal Register's requirements, the NRC would, in the final rule, correct paragraph III.A of appendix E to 10 CFR part 52 by identifying in a table all of the publicly-available documents which are approved for incorporation by reference by the Director of the Office of the Federal Register. Therefore, these documents would be regarded as legally-binding requirements by virtue of publication in the Federal Register of the Director of the Office of the Federal Register's approval of incorporation by reference.

The NRC is not requesting public comment in this supplemental proposed rule on the additional documents (i.e., those other than as described in Section I of the SUPPLEMENTARY INFORMATION section of this document) that would be incorporated by reference in this rulemaking. The NRC will explain in a final ESBWR design certification rule why the changes to paragraph III.A, reflecting the Director of the Office of the Federal Register's approval for incorporation by reference of these 20 additional documents, did not require a supplemental comment opportunity.

IV. Section-by-Section Analysis

The following section-by-section analysis discusses two proposed revisions to the NRC's regulations that were not part of the proposed ESBWR design certification rule published on March 24, 2011 (76 FR 16549), which address the changes related to the analysis methodology supporting the ESBWR steam dryer design that were made after the close of the public comment period for the proposed ESBWR design certification rule. No section-by-section analysis is provided for the NRC's proposed clarification of its intent to treat 50 referenced documents within the ESBWR DCD as requirements and matters resolved in subsequent licensing and enforcement actions for plants referencing the ESBWR design certification. This is because the NRC's proposed clarification does not require any change to the revision to the language of the proposed ESBWR design certification rule which was previously published for public comment, other than the revision of the ESBWR DCD from Revision 9 to Revision 10, which includes clarifying changes in Section 1.6 of the ESBWR DCD (described in Section III.B of the SUPPLEMENTARY INFORMATION section of this document).

Appendix E, Paragraph III.A

This paragraph identifies the version of the ESBWR DCD which is approved for incorporation by reference by the Director of the Office of the Federal Register, and therefore is considered to be a legally-binding regulation by virtue of the rulemaking process. In this supplemental proposed rule, the NRC proposes to revise this paragraph to update the generic DCD revision number from Revision 9 to 10, provide the ADAMS accession number for Revision 10 of the DCD, and update the name and address of the GEH contact from whom a member of the public could obtain copies of the generic DCD. In addition, editorial changes were made in this paragraph to improve clarity.

Appendix E, Paragraph VIII.B.6.b

This paragraph identifies Tier 2* information which retains that status throughout the duration of a license referencing the ESBWR design certification rule. In this supplemental proposed rule, the NRC proposes to add the ESBWR steam dryer analysis methodology to paragraph VIII.B.6.b.(8). As a result, this methodology would be designated as Tier 2* and that status would continue throughout the duration of a license referencing this appendix. A licensee referencing this appendix would be subject to the change controls as specified in paragraph VIII.B.6.b with respect to the ESBWR steam dryer analysis methodology.

V. Plain Writing

The Plain Writing Act of 2010 (Pub. L. 111-274) requires Federal agencies to write documents in a clear, concise, and well-organized manner. The NRC has written this document to be consistent with the Plain Writing Act as well as the Presidential Memorandum, “Plain Language in Government Writing,” published June 10, 1998 (63 FR 31883). The NRC requests comment on the supplemental proposed rule with respect to the clarity and effectiveness of the language used.

In the proposed ESBWR design certification rule published on March 24, 2011, the NRC made available for public comment a draft Environmental Assessment (ADAMS Accession No. ML102220247) for the ESBWR design addressing various design alternatives to prevent and mitigate severe accidents. This supplemental proposed rule does not materially change the ESBWR design nor does it affect the NRC's prior evaluation of design alternatives to prevent and mitigate severe accidents. Therefore, the NRC has not prepared a supplemental environmental assessment for this supplemental proposed rule, nor is the NRC seeking additional public comment on the environmental assessment already prepared to support the proposed ESBWR design certification rule.

VII. Paperwork Reduction Act

The proposed ESBWR design certification rule, published on March 24, 2011, contains new or amended information collection requirements that are subject to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq) (PRA). The proposed rule was submitted to the Office of Management and Budget (OMB) for review and approval of the information collection requirements under clearance number 3150-0151. Public comments regarding the information collection requirements were requested in conjunction with the proposed rule.

This supplemental proposed rule does not contain any new or amended information collection requirements not already identified in the March 24, 2011, proposed rule and, therefore, is not subject to the requirements of the PRA. As a result, the supplemental proposed rule will not be submitted to OMB for approval. Further, the NRC is not seeking further public comment on the potential impact of the information collections contained in or the issues outlined in the PRA section of the ESBWR design certification proposed rule.

Public Protection Notification

The NRC may not conduct or sponsor, and a person is not required to respond to, a request for information or an information collection requirement unless the requesting document displays a currently valid OMB control number.

VIII. Regulatory Analysis

The NRC has not prepared a regulatory analysis for this supplemental proposed rule. As discussed in the proposed ESBWR design certification rule, the NRC does not prepare regulatory analyses for design certification rulemakings. This supplemental proposed rule does not materially change the regulatory nature of this design certification rulemaking. Accordingly, the Commission concludes that preparation of a regulatory analysis for this supplemental proposed rule to certify the ESBWR standard plant design is neither required nor appropriate.

IX. Backfitting and Issue Finality

The NRC has determined that this supplemental proposed rule does not constitute backfitting as defined in the backfit rule under 10 CFR 50.109, nor is it inconsistent with any of the finality provisions for design certifications under 10 CFR 52.63. This design certification does not impose new or changed requirements on existing 10 CFR part 50 licensees, nor does it impose new or changed requirements on existing design certification rules in appendices A through D to 10 CFR part 52. Therefore, a backfit analysis was not prepared for this supplemental proposed rule.

This section contains instructions regarding how interested persons who wish to comment on the proposed design certification, with respect to any of the 50 non-publicly available documents (including the three documents addressing the analysis methodology supporting the ESBWR steam dryer design), may request access to those documents in order to prepare their comments within the scope of this supplemental proposed rule. These documents, which are listed in Table 2 of Section I.A of the SUPPLEMENTARY INFORMATION section of this document, contain SUNSI (including proprietary information 2 and security-related information 3) and, in one case, SGI. Requirements for access to SGI are primarily set forth in 10 CFR parts 2 and 73. This document provides information specific to this supplemental proposed rule; however, nothing in this document is intended to conflict with the SGI regulations.

2 For purposes of this discussion, “proprietary information” constitutes trade secrets or commercial or financial information that are privileged or confidential, as those terms are used under the Freedom of Information Act and the NRC's implementing regulation at 10 CFR part 9.

Interested persons who desire access to SUNSI information on the ESBWR design constituting proprietary information should first request access to that information from GEH, the design certification applicant. A request for access should be submitted to the NRC if the applicant does not either grant or deny access by the 10-day deadline described in the following section.

One of the 50 non-publicly available documents in Table 2, NEDE-33536P, contains proprietary information and security-related information. Another of the non-publicly available documents in Table 2, NEDE-33391, contains proprietary information, security-related information, and SGI. If you need access to proprietary information in one or both of these two documents in order to develop comments within the scope of this supplemental proposed rule, then your request for access should first be submitted to GEH in accordance with the previous paragraph. By contrast, if you need access to the security-related information and/or SGI in one or both of those documents in order to provide comments within the scope of this supplemental proposed rule, then your request for access to the security-related information and/or SGI must be submitted to the NRC as described further in this section. Therefore, if you need access to proprietary information as well as security-related information and/or SGI in one or both of those documents, then you should pursue access to the information in separate requests submitted to GEH and the NRC.

Submitting a Request to the NRC for Access

Within 10 days after publication of this supplemental proposed rule, any individual or entity who, in order to submit comments on the supplemental proposed ESBWR design certification rule, believes access to information in this rulemaking docket that the NRC has categorized as SUNSI or SGI is necessary may request access to such information. Requests for access to SUNSI or SGI submitted more than 10 days after publication of this document will not be considered absent a showing of good cause for the late filing explaining why the request could not have been filed earlier.

The individual or entity requesting access to the information (hereinafter, the “requester”) shall submit a letter requesting permission to access SUNSI and/or SGI to the Office of the Secretary, U.S. Nuclear Regulatory Commission, Attention: Rulemakings and Adjudications Staff, Washington, DC 20555-0001. The expedited delivery or courier mail address is: Office of the Secretary, U.S. Nuclear Regulatory Commission, Attention: Rulemakings and Adjudications Staff, 11555 Rockville Pike, Rockville, Maryland 20852. The email address for the Office of the Secretary is rulemaking.comments@nrc.gov. The requester must send a copy of the request to the design certification applicant at the same time as the original transmission to the NRC using the same method of transmission. Requests to the applicant must be sent to Jerald G. Head, Senior Vice President, Regulatory Affairs, GE-Hitachi Nuclear Energy, 3901 Castle Hayne Road, MC A-18, Wilmington, North Carolina 28401, email: jerald.head@ge.com. For purposes of complying with this requirement, a “request” includes all the information required to be submitted to the NRC as set forth in this section.

The request must include the following information:

1. The name of this design certification, ESBWR Design Certification; the rulemaking identification number, RIN 3150-AI85; the rulemaking docket number, NRC-2010-0135; and a Federal Register citation to this supplemental proposed rule at the top of the first page of the request.

2. The name, address, email or FAX number of the requester. If the requester is an entity, the name of the individual(s) to whom access is to be provided, then the address and email or FAX number for each individual, and a statement of the authority granted by the entity to each individual to review the information and to prepare comments on behalf of the entity must be provided. If the requester is relying upon another individual to evaluate the requested SUNSI and/or SGI and prepare comments, then the name, affiliation, address and email or FAX number for that individual must be provided.

3.a. If the request is for SUNSI, the requester's need for the information in order to prepare meaningful comments on the supplemental proposed design certification must be demonstrated. Each of the following areas must be addressed with specificity:

i. The specific issue or subject matter on which the requester wishes to comment;

ii. An explanation why information which is publicly available, including the publicly-available versions of the application and design control document, and information on the NRC's docket for the design certification application is insufficient to provide the basis for developing meaningful comment on the supplemental proposed ESBWR design certification rule with respect to the issue or subject matter described in paragraph 3.a.i. of this section; and

iii. Information demonstrating that the individual to whom access is to be provided has the technical competence (demonstrable knowledge, skill, experience, education, training, or certification) to understand and use (or evaluate) the requested information for a meaningful comment on the supplemental proposed ESBWR design certification rule with respect to the issue or subject matter described in paragraph 3.a.i. of this section.

b. If the request is for SUNSI constituting proprietary information, then a chronology and discussion of the requester's attempts to obtain the information from the design certification applicant, and the final communication from the requester to the applicant and the applicant's response with respect to the request for access to proprietary information must be submitted.

4. Based on an evaluation of the information submitted under paragraph 3 of this section, the NRC staff will determine within 10 days of receipt of the written access request whether the requester has established a legitimate need for SUNSI access.

4.a. If the request is for SGI, then the requester's “need to know” the SGI as required by 10 CFR 73.2 and 10 CFR 73.22(b)(1) must be demonstrated. Consistent with the definition of “need to know” as stated in 10 CFR 73.2 and 10 CFR 73.22(b)(1), each of the following areas must be addressed with specificity:

i. The specific issue or subject matter on which the requester wishes to comment;

ii. An explanation why information which is publicly available, including the publicly-available versions of the application and design control document, and information on the NRC's docket for the design certification application is insufficient to provide the basis for developing meaningful comment on the proposed design certification with respect to the issue or subject matter described in paragraph 4.a.i. of this section, and that the SGI requested is indispensable in order to develop meaningful comments; 4 and

4 Broad SGI requests under these procedures are unlikely to meet the standard for need to know. Furthermore, NRC staff redaction of information from requested documents before their release may be appropriate to comport with this requirement. The procedures in this notice of proposed rulemaking do not authorize unrestricted disclosure or less scrutiny of a requester's need to know than ordinarily would be applied in connection with either adjudicatory or non-adjudicatory access to SGI.

iii. Information demonstrating that the individual to whom access is to be provided has the technical competence (demonstrable knowledge, skill, experience, education, training, or certification) to understand and use (or evaluate) the requested SGI, in order to develop meaningful comments on the proposed design certification with respect to the issue or subject matter described in paragraph 4.a.i. of this section.

b. A completed Form SF-85, “Questionnaire for Non-Sensitive Positions,” must be submitted for each individual who would have access to SGI. The completed Form SF-85 will be used by the NRC's Office of Administration to conduct the background check required for access to SGI, as required by 10 CFR part 2, subpart G, and 10 CFR 73.22(b)(2) to determine the requester's trustworthiness and reliability. For security reasons, Form SF-85 can only be submitted electronically through the electronic Questionnaire for Investigations Processing (e-QIP) Web site, a secure Web site that is owned and operated by the Office of Personnel Management. To obtain online access to the form, the requester should contact the NRC's Office of Administration at 301-415-7000.5

5 The requester will be asked to provide his or her full name, social security number, date and place of birth, telephone number, and email address. After providing this information, the requester usually should be able to obtain access to the online form within one business day.

c. A completed Form FD-258 (fingerprint card), signed in original ink, and submitted under 10 CFR 73.57(d). Copies of Form FD-258 may be obtained by writing the Office of Information Services, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001; by calling 301-415-3710 or 301-492-7311; or by email to Forms.Resource@nrc.gov. The fingerprint card will be used to satisfy the requirements of 10 CFR part 2, 10 CFR 73.22(b)(1), and Section 149 of the Atomic Energy Act of 1954, as amended, which mandates that all persons with access to SGI must be fingerprinted for a Federal Bureau of Investigation identification and criminal history records check;

d. A check or money order in the amount of $238.00 6 payable to the U.S. Nuclear Regulatory Commission for each individual for whom the request for access has been submitted; and

6 This fee is subject to change pursuant to the Office of Personnel Management's adjustable billing rates.

e. If the requester or any individual who will have access to SGI believes they belong to one or more of the categories of individuals relieved from the criminal history records check and background check requirements, as stated in 10 CFR 73.59, the requester should also provide a statement specifically stating which relief the requester is invoking, and explaining the requester's basis (including supporting documentation) for believing that the relief is applicable. While processing the request, the NRC's Office of Administration, Personnel Security Branch, will make a final determination whether the stated relief applies. Alternatively, the requester may contact the Office of Administration for an evaluation of their status prior to submitting the request. Persons who are not subject to the background check are not required to complete the SF-85 or Form FD-258; however, all other requirements for access to SGI, including the need to know, are still applicable.

Copies of documents and materials required by paragraphs 4.b., 4.c., 4.d., and 4.e., as applicable, of this section must be sent to the following address: Office of Administration, U.S. Nuclear Regulatory Commission, Personnel Security Branch, Mail Stop TWF-03B46M, Washington, DC 20555-0012.

These documents and materials should not be included with the request letter to the Office of the Secretary, but the request letter should state that the forms and fees have been submitted as required.

5. To avoid delays in processing requests for access to SGI, all forms should be reviewed for completeness and accuracy (including legibility) before submitting them to the NRC. The NRC will return incomplete or illegible packages to the sender without processing.

6. Based on an evaluation of the information submitted under paragraphs 3.a. and 3.b., or 4.a., 4.b., 4.c., and 4.e. of this section, as applicable, the NRC staff will determine within 10 days of receipt of the written access request whether the requester has established a legitimate need for SUNSI access or need to know the SGI requested.

7. For SUNSI access requests, if the NRC staff determines that the requester has established a legitimate need for access to SUNSI, the NRC staff will notify the requester in writing that access to SUNSI has been granted; provided, however, that if the SUNSI consists of proprietary information (i.e., trade secrets or confidential or financial information), the NRC staff must first notify the applicant of the NRC staff's determination to grant access to the requester not less than 10 days before informing the requester of the NRC staff's decision. If the applicant wishes to challenge the NRC staff's determination, it must follow the procedures in paragraph 12 of this section. The NRC staff will not provide the requester access to disputed proprietary information until the procedures in paragraph 12 of this section are completed.

The written notification to the requester will contain instructions on how the requester may obtain copies of the requested documents, and any other conditions that may apply to access to those documents. These conditions will include, but are not necessarily limited to, the signing of a protective order setting forth terms and conditions to prevent the unauthorized or inadvertent disclosure of SUNSI by each individual who will be granted access to SUNSI. Claims that the provisions of such a protective order have not been complied with may be filed by calling the NRC's toll-free safety hotline at 1-800-695-7403. Please note: Calls to this number are not recorded between the hours of 7:00 a.m. to 5:00 p.m. Eastern Time. However, calls received outside these hours are answered by the NRC's Incident Response Operations Center on a recorded line. Claims may also be filed via email sent to NRO_Allegations@nrc.gov, or may be sent in writing to the U.S. Nuclear Regulatory Commission, ATTN: Timothy Frye, Mail Stop T7-D24, Washington, DC 20555-0001.

8. For requests for access to SGI, if the NRC staff determines that the requester has established a need to know the SGI, the NRC's Office of Administration will then determine, based upon completion of the background check, whether the proposed recipient is trustworthy and reliable, as required for access to SGI by 10 CFR 73.22(b). If the NRC's Office of Administration determines that the individual or individuals are trustworthy and reliable, the NRC will promptly notify the requester in writing. The notification will provide the names of approved individuals as well as the conditions under which the SGI will be provided. Those conditions will include, but are not necessarily limited to, the signing of a protective order by each individual who will be granted access to SGI. Claims that the provisions of such a protective order have not been complied with may be filed by calling the NRC's toll-free safety hotline at 800-695-7403. Please note: Calls to this number are not recorded between the hours of 7:00 a.m. to 5:00 p.m. Eastern Time. However, calls received outside these hours are answered by the NRC's Incident Response Operations Center on a recorded line. Claims may also be filed via email sent to NRO_Allegations@nrc.gov, or may be sent in writing to the U.S. Nuclear Regulatory Commission, ATTN: Timothy Frye, Mail Stop T7-D24, Washington, DC 20555-0001. Because SGI requires special handling, initial filings with the NRC should be free from such specific information. If necessary, the NRC will arrange an appropriate setting for transmitting SGI to the NRC.

9. Release and Storage of SGI. Prior to providing SGI to the requester, the NRC staff will conduct (as necessary) an inspection to confirm that the recipient's information protection system is sufficient to satisfy the requirements of 10 CFR 73.22. Alternatively, recipients may opt to view SGI at an approved SGI storage location rather than establish their own SGI protection program to meet SGI protection requirements.

10. Filing of Comments on the Supplemental Proposed ESBWR Design Certification Rule. Any comments in this rulemaking proceeding that are based upon the disclosed SUNSI or SGI information must be filed by the requester no later than 25 days after receipt of (or access to) that information, or the close of the public comment period, whichever is later. The commenter must comply with all NRC requirements regarding the submission of SUNSI and SGI to the NRC when submitting comments to the NRC (including marking and transmission requirements).

11. Review of Denials of Access.

a. If the request for access to SUNSI or SGI is denied by the NRC staff, the NRC staff shall promptly notify the requester in writing, briefly stating the reason or reasons for the denial.

b. Before the NRC's Office of Administration makes an adverse determination regarding the trustworthiness and reliability of the proposed recipient(s) of SGI, the NRC's Office of Administration, as specified by 10 CFR 2.705(c)(3)(iii), must provide the proposed recipient(s) any records that were considered in the trustworthiness and reliability determination, including those required to be provided under 10 CFR 73.57(e)(1), so that the proposed recipient is provided an opportunity to correct or explain information.

c. Appeals from a denial of access must be made to the NRC's Executive Director for Operations (EDO) under 10 CFR 9.29. The decision of the EDO constitutes final agency action under 10 CFR 9.29(d).

12. Predisclosure Procedures for SUNSI Constituting Trade Secrets or Confidential Commercial or Financial Information. The NRC will follow the procedures in 10 CFR 9.28 if the NRC staff determines, under paragraph 7 of this section, that access to SUNSI constituting trade secrets or confidential commercial or financial information will be provided to the requester. However, any objection filed by the applicant under 10 CFR 9.28(b) must be filed within 15 days of the NRC staff notice in paragraph 7 of this section rather than the 30-day period provided for under that paragraph. In applying the provisions of 10 CFR 9.28, the applicant for the design certification rule will be treated as the “submitter.”

XI. Availability of Documents

The documents related to the ESBWR steam dryer analysis methodology for which the NRC is seeking public comment are listed in Table 1, Section 1.A of the SUPPLEMENTARY INFORMTION section of this document. The documents which the NRC regards as requirements and are matters resolved under Paragraph VI, ISSUE RESOLUTION, of the ESBWR design certification rule, and for which the NRC is seeking public comment on the NRC's proposed clarification of its intent to treat these non-public documents as requirements and matters resolved, are listed in Table 2, Section 1.A of the SUPPLEMENTARY INFORMATION section of this document.

The documents to be treated by the NRC as requirements in the final ESBWR design certification rule, but the NRC is not seeking public comment, are listed in Table 3, Section III.C of the SUPPLEMENTARY INFORMATION section of this document. Additional documents relevant to the proposed ESBWR design certification rule, for which an opportunity for public comment was provided in the proposed ESBWR design certification rule (76 FR 16549; March 24, 2011), are listed in Table 4. These documents have not changed since the publication of the proposed ESBWR design certification rule for public comment. The NRC is not seeking public comment on these documents in this supplemental proposed rule; they are listed in Table 4 for the benefit of the reader.

Table 4—Documents Relevant to the ESBWR Design Certification Rule, for Which an Opportunity for Public Comment Was Provided in the ESBWR Proposed RuleDocument No.Document titlePublicly

For the reasons set out in the preamble and under the authority of the Atomic Energy Act of 1954, as amended; the Energy Reorganization Act of 1974, as amended; and 5 U.S.C. 552 and 553, the NRC is proposing to adopt the following amendments to 10 CFR Part 52.

PART 52—LICENSES, CERTIFICATIONS, AND APPROVALS FOR NUCLEAR POWER PLANTS1. The authority citation for 10 CFR part 52 continues to read as follows:Authority:

A. Incorporation by reference approval. All Tier 1, Tier 2 (including the availability controls in Appendix 19ACM), and the generic TS in the ESBWR DCD, Revision 10, dated April 2014, “ESBWR Design Control Document,” are approved for incorporation by reference by the Director of the Office of the Federal Register under 5 U.S.C. 552(a) and 1 CFR part 51. You may obtain copies of the generic DCD from Jerald G. Head, Senior Vice President, Regulatory Affairs, GE-Hitachi Nuclear Energy, 3901 Castle Hayne Road, MC A-18, Wilmington, NC 28401, telephone: 1-910-819-5692. You can view the generic DCD online in the NRC Library at http://www.nrc.gov/reading-rm/adams.html. In ADAMS, search under ADAMS Accession No. ML14104A929. If you do not have access to ADAMS or if you have problems accessing documents located in ADAMS, contact the NRC's Public Document Room (PDR) reference staff at 1-800-397-4209, 1-301-415-3747, or by email at PDR.Resource@nrc.gov. The generic DCD can also be viewed at the Federal rulemaking Web site, http://www.regulations.gov, by searching for documents filed under Docket ID NRC-2010-0135. A copy of the DCD is available for examination and copying at the NRC's PDR located at Room O-1F21, One White Flint North, 11555 Rockville Pike, Rockville, Maryland 20852. A copy also is available for examination at the NRC Library located at Two White Flint North, 11545 Rockville Pike, Rockville, Maryland 20852, telephone: 301-415-5610, email: Library.Resource@nrc.gov. All approved material is available for inspection at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 1-202-741-6030 or go to http://www.archives.gov/federal-register/cfr/ibrlocations.html.

The Bureau of Consumer Financial Protection (Bureau) proposes amendments to certain mortgage rules issued in 2013. The proposed rule would provide an alternative small servicer definition for nonprofit entities that meet certain requirements, amend the existing exemption from the ability-to-repay rule for nonprofit entities that meet certain requirements, and provide a limited cure mechanism for the points and fees limit that applies to qualified mortgages.

DATES:

Comments regarding the proposed amendments to 12 CFR 1026.41(e)(4), 1026.43(a)(3), and 1026.43(e)(3) must be received on or before June 5, 2014. For the requests for comment regarding correction or cure of debt-to-income ratio overages and the credit extension limit for the small creditor definition, comments must be received on or before July 7, 2014.

ADDRESSES:

You may submit comments, identified by Docket No. CFPB-2014-0009 or RIN 3170-AA43, by any of the following methods:

Instructions: All submissions should include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. Because paper mail in the Washington, DC area and at the Bureau is subject to delay, commenters are encouraged to submit comments electronically. In general, all comments received will be posted without change to http://www.regulations.gov. In addition, comments will be available for public inspection and copying at 1700 G Street NW., Washington, DC 20552, on official business days between the hours of 10 a.m. and 5 p.m. Eastern Time. You can make an appointment to inspect the documents by telephoning (202) 435-7275.

All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Sensitive personal information, such as account numbers or social security numbers, should not be included. Comments generally will not be edited to remove any identifying or contact information.

In January 2013, the Bureau issued several final rules concerning mortgage markets in the United States (2013 Title XIV Final Rules), pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), Public Law 111-203, 124 Stat. 1376 (2010).1 The Bureau clarified and revised those rules through notice and comment rulemaking during the summer and fall of 2013. The purpose of those updates was to address important questions raised by industry, consumer groups, or other stakeholders. The Bureau is now proposing several additional amendments to the 2013 Title XIV Final Rules to revise regulatory provisions and official interpretations primarily relating to the Regulation Z ability-to-repay/qualified mortgage requirements and servicing rules, as well as seeking comment on additional issues. The Bureau expects to issue additional proposals to address other topics relating to the 2013 Title XIV Final Rules, such as the definition of “rural and underserved” for purposes of certain mortgage provisions affecting small creditors as discussed further below.

Specifically, the Bureau is proposing three amendments to the 2013 Title XIV Final Rules:

• To provide an alternative definition of the term “small servicer,” that would apply to certain nonprofit entities that service for a fee loans on behalf of other nonprofit chapters of the same organization. Although the Bureau is proposing this change in Regulation Z, the change will also affect several provisions of Regulation X, which cross-reference the Regulation Z small servicer exemption.

• To amend the Regulation Z ability-to-repay requirements to provide that certain interest-free, contingent subordinate liens originated by nonprofit creditors will not be counted towards the credit extension limit that applies to the nonprofit exemption from the ability-to-repay requirements.

• To provide a limited, post-consummation cure mechanism for loans that are originated with the good faith expectation of qualified mortgage status but that actually exceed the points and fees limit for qualified mortgages.

In addition to providing specific proposals on these issues, the Bureau is seeking comment on two additional topics:

• Whether and how to provide a limited, post-consummation cure or correction provision for loans that are originated with the good faith expectation of qualified mortgage status but that actually exceed the 43-percent debt-to-income ratio limit that applies to certain qualified mortgages.

• Feedback and data from smaller creditors regarding implementation of certain provisions in the 2013 Title XIV Final Rules that are tailored to account for small creditor operations and how their origination activities have changed in light of the new rules.

II. BackgroundA. Title XIV Rulemakings Under the Dodd-Frank Act

In response to an unprecedented cycle of expansion and contraction in the mortgage market that sparked the most severe U.S. recession since the Great Depression, Congress passed the Dodd-Frank Act, which was signed into law on July 21, 2010. In the Dodd-Frank Act, Congress established the Bureau and generally consolidated the rulemaking authority for Federal consumer financial laws, including the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), in the Bureau.2 At the same time, Congress significantly amended the statutory requirements governing mortgage practices, with the intent to restrict the practices that contributed to and exacerbated the crisis.3 Under the statute, most of these new requirements would have taken effect automatically on January 21, 2013, if the Bureau had not issued implementing regulations by that date.4 To avoid uncertainty and potential disruption in the national mortgage market at a time of economic vulnerability, the Bureau issued several final rules in a span of less than two weeks in January 2013 to implement these new statutory provisions and provide for an orderly transition.

2See, e.g., sections 1011 and 1021 of the Dodd-Frank Act, 12 U.S.C. 5491 and 5511 (establishing and setting forth the purpose, objectives, and functions of the Bureau); section 1061 of the Dodd-Frank Act, 12 U.S.C. 5581 (consolidating certain rulemaking authority for Federal consumer financial laws in the Bureau); section 1100A of the Dodd-Frank Act (codified in scattered sections of 15 U.S.C.) (similarly consolidating certain rulemaking authority in the Bureau). But see Section 1029 of the Dodd-Frank Act, 12 U.S.C. 5519 (subject to certain exceptions, excluding from the Bureau's authority any rulemaking authority over a motor vehicle dealer that is predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both).

3See title XIV of the Dodd-Frank Act, Public Law 111-203, 124 Stat. 1376 (2010) (codified in scattered sections of 12 U.S.C., 15 U.S.C., and 42 U.S.C.).

4See section 1400(c) of the Dodd-Frank Act, 15 U.S.C. 1601 note.

On January 10, 2013, the Bureau issued the 2013 Escrows Final Rule, the January 2013 ATR Final Rule, and the 2013 HOEPA Final Rule. 78 FR 4725 (Jan. 22, 2013); 78 FR 6407 (Jan. 30, 2013); 78 FR 6855 (Jan. 31, 2013). On January 17, 2013, the Bureau issued the 2013 Mortgage Servicing Final Rules. 78 FR 10695 (Feb. 14, 2013); 78 FR 10901 (Feb. 14, 2013). On January 18, 2013, the Bureau issued the 2013 ECOA Valuations Final Rule and, jointly with other agencies, the 2013 Interagency Appraisals Final Rule. 78 FR 7215 (Jan. 31, 2013); 78 FR 10367 (Feb. 13, 2013). On January 20, 2013, the Bureau issued the 2013 Loan Originator Final Rule. 78 FR 11279 (Feb. 15, 2013).5 Pursuant to the Dodd-Frank Act, which permitted a maximum of one year for implementation, most of these rules became effective on January 10, 2014.

5 Each of these rules was published in the Federal Register shortly after issuance.

Concurrent with the January 2013 ATR Final Rule, on January 10, 2013, the Bureau issued proposed amendments to the rule (i.e., the January 2013 ATR Proposal), which the Bureau finalized on May 29, 2013 (i.e., the May 2013 ATR Final Rule). 78 FR 6621 (Jan. 30, 2013); 78 FR 35429 (June 12, 2013). The Bureau issued additional corrections and clarifications to the 2013 Mortgage Servicing Final Rules and the May 2013 ATR Final Rule in the summer and fall of 2013.6

On February 13, 2013, the Bureau announced an initiative to support implementation of its new mortgage rules (the Implementation Plan),7 under which the Bureau would work with the mortgage industry and other stakeholders to ensure that the new rules could be implemented accurately and expeditiously. The Implementation Plan included: (1) Coordination with other agencies, including the development of consistent, updated examination procedures; (2) publication of plain-language guides to the new rules; (3) publication of additional corrections and clarifications of the new rules, as needed; (4) publication of readiness guides for the new rules; and (5) education of consumers on the new rules.

This proposal concerns additional revisions to the new rules. The purpose of these updates is to address important questions raised by industry, consumer groups, or other stakeholders. As discussed below, the Bureau contemplates issuing additional updates on additional topics.

III. Legal Authority

The Bureau is issuing this proposed rule pursuant to its authority under TILA, RESPA, and the Dodd-Frank Act. Section 1061 of the Dodd-Frank Act transferred to the Bureau the “consumer financial protection functions” previously vested in certain other Federal agencies, including the Board of Governors of the Federal Reserve System (Board). The term “consumer financial protection function” is defined to include “all authority to prescribe rules or issue orders or guidelines pursuant to any Federal consumer financial law, including performing appropriate functions to promulgate and review such rules, orders, and guidelines. Section 1061 of the Dodd-Frank Act also transferred to the Bureau all of the Department of Housing and Urban Development's (HUD) consumer protection functions relating to RESPA. Title X of the Dodd-Frank Act, including section 1061 of the Dodd-Frank Act, along with TILA, RESPA, and certain subtitles and provisions of title XIV of the Dodd-Frank Act, are Federal consumer financial laws.8

Section 105(a) of TILA authorizes the Bureau to prescribe regulations to carry out the purposes of TILA. 15 U.S.C. 1604(a). Under section 105(a), such regulations may contain such additional requirements, classifications, differentiations, or other provisions, and may provide for such adjustments and exceptions for all or any class of transactions, as in the judgment of the Bureau are necessary or proper to effectuate the purposes of TILA, to prevent circumvention or evasion thereof, or to facilitate compliance therewith. A purpose of TILA is “to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit.” TILA section 102(a), 15 U.S.C. 1601(a). In particular, it is a purpose of TILA section 129C, as added by the Dodd-Frank Act, to assure that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans and that are understandable and not unfair, deceptive, and abusive. 15 U.S.C. 1639b(a)(2).

Section 105(f) of TILA authorizes the Bureau to exempt from all or part of TILA a class of transactions if the Bureau determines that TILA coverage does not provide a meaningful benefit to consumers in the form of useful information or protection. 15 U.S.C. 1604(f)(1). That determination must consider:

• The loan amount and whether TILA's provisions “provide a benefit to the consumers who are parties to such transactions”;

• The extent to which TILA requirements “complicate, hinder, or make more expensive the credit process”;

• The borrowers' “status,” including their “related financial arrangements,” their financial sophistication relative to the type of transaction, and the importance to the borrowers of the credit, related supporting property, and TILA coverage;

• Whether the loan is secured by the consumer's principal residence; and

• Whether consumer protection would be undermined by such an exemption. 15 U.S.C. 1604(f)(2).

TILA section 129C(b)(3)(B)(i) provides the Bureau with authority to prescribe regulations that revise, add to, or subtract from the criteria that define a qualified mortgage upon a finding that such regulations are: necessary or proper to ensure that responsible, affordable mortgage credit remains available to consumers in a manner consistent with the purposes of the ability-to-repay requirements; necessary and appropriate to effectuate the purposes of the ability-to-repay and residential mortgage loan origination requirements; to prevent circumvention or evasion thereof; or to facilitate compliance with TILA sections 129B and 129C. 15 U.S.C. 1639c(b)(3)(B)(i). In addition, TILA section 129C(b)(3)(A) requires the Bureau to prescribe regulations to carry out such purposes. 15 U.S.C. 1639c(b)(3)(A).

B. RESPA

Section 19(a) of RESPA authorizes the Bureau to prescribe such rules and regulations, to make such interpretations, and to grant such reasonable exemptions for classes of transactions, as may be necessary to achieve the purposes of RESPA, which include RESPA's consumer protection purposes. 12 U.S.C. 2617(a). In addition, section 6(j)(3) of RESPA authorizes the Bureau to establish any requirements necessary to carry out section 6 of RESPA, and section 6(k)(1)(E) of RESPA authorizes the Bureau to prescribe regulations that are appropriate to carry out RESPA's consumer protection purposes. 12 U.S.C. 2605(j)(3) and (k)(1)(E). The consumer protection purposes of RESPA include responding to borrower requests and complaints in a timely manner, maintaining and providing accurate information, helping borrowers avoid unwarranted or unnecessary costs and fees, and facilitating review for foreclosure avoidance options.

C. The Dodd-Frank Act

Section 1405(b) of the Dodd-Frank Act provides that, “in order to improve consumer awareness and understanding of transactions involving residential mortgage loans through the use of disclosures,” the Bureau may exempt from disclosure requirements, “in whole or in part . . . any class of residential mortgage loans” if the Bureau determines that such exemption “is in the interest of consumers and in the public interest.” 15 U.S.C. 1601 note.9 Notably, the authority granted by section 1405(b) applies to “disclosure requirements” generally, and is not limited to a specific statute or statutes. Accordingly, Dodd-Frank Act section 1405(b) is a broad source of authority for exemptions from the disclosure requirements of TILA and RESPA.

9 “Residential mortgage loan” is generally defined as any consumer credit transaction (other than open-end credit plans) that is secured by a mortgage (or equivalent security interest) on “a dwelling or on residential real property that includes a dwelling” (except, in certain instances, timeshare plans). 15 U.S.C. 1602(cc)(5).

Moreover, section 1022(b)(1) of the Dodd-Frank Act authorizes the Bureau to prescribe rules “as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof.” 12 U.S.C. 5512(b)(1). Accordingly, the Bureau is exercising its authority under Dodd-Frank Act section 1022(b) to propose rules that carry out the purposes and objectives of TILA, RESPA, title X of the Dodd-Frank Act, and certain enumerated subtitles and provisions of title XIV of the Dodd-Frank Act, and to prevent evasion of those laws.

The Bureau is proposing to amend rules that implement certain Dodd-Frank Act provisions. In particular, the Bureau is proposing to amend provisions of Regulation Z (and, by reference, Regulation X) adopted by the 2013 Mortgage Servicing Final Rules (including July 2013 amendments thereto), the January 2013 ATR Final Rule, and the May 2013 ATR Final Rule.

IV. Proposed Effective Date

The Bureau proposes that all of the changes proposed herein take effect thirty days after publication of a final rule in the Federal Register. The proposed changes would expand exemptions and provide relief from regulatory requirements; therefore the Bureau believes an effective date of 30 days after publication may be appropriate. The Bureau seeks comment on whether the proposed effective date is appropriate, or whether the Bureau should adopt an alternative effective date.

The Bureau is proposing to revise the scope of the exemption for small servicers that is set forth in § 1026.41 of Regulation Z and incorporated by cross-reference in certain provisions of Regulation X. The proposal would add an alternative definition of small servicer which would apply to certain nonprofit entities that service for a fee only loans for which the servicer or an associated nonprofit entity is the creditor.

10 12 CFR 1026.41(e) (requiring delivery each billing cycle of a periodic statement, with specific content and form). For loans serviced by a small servicer, a creditor or assignee is also exempt from the Regulation Z periodic statement requirements. 12 CFR 1026.41(e)(4)(i).

12 12 CFR 1024.30(b)(1) (exempting small servicers from §§ 1024.38 through 41, except as otherwise provided under 41(j), as discussed in note 13, infra). Sections 1024.38 through 40 respectively impose general servicing policies, procedures, and requirements; early intervention requirements for delinquent borrowers; and policies and procedures to maintain continuity of contact with delinquent borrowers).

13See 12 CFR 1024.41 (loss mitigation procedures). Though exempt from most of the rule, small servicers are subject to the prohibition of foreclosure referral before the loan obligation is more than 120 days delinquent and may not make the first notice or filing for foreclosure if a borrower is performing pursuant to the terms of an agreement on a loss mitigation option. 12 CFR 1024.41(j).

Current § 1026.41(e)(4)(ii) defines the term “small servicer” as a servicer that either: (A) Services, together with any affiliates, 5,000 or fewer mortgage loans, for all of which the servicer (or an affiliate) is the creditor or assignee; or (B) is a Housing Finance Agency, as defined in 24 CFR 266.5. “Affiliate” is defined in § 1026.32(b)(5) as any company that controls, is controlled by, or is under common control with another company, as set forth in the Bank Holding Company Act of 1956, 12 U.S.C. 1841 et seq. (BHCA).14

14 Under the BHCA, a company has “control” over another company if it (i) “directly or indirectly . . . owns, controls, or has power to vote 25 per centum or more of any class of voting securities” of the other company; (ii) “controls . . . the election of a majority of the directors or trustees” of the other company; or (iii) “directly or indirectly exercises a controlling influence over the management or policies” of the other company (based on a determination by the Board). 12 U.S.C. 1841(a)(2).

Generally, under § 1026.41(e)(4)(ii)(A), a servicer cannot be a small servicer if it services any loan for which the servicer or its affiliate is not the creditor or assignee. However, current § 1026.41(e)(4)(iii) excludes from consideration certain types of mortgage loans for purposes of determining whether a servicer qualifies as a small servicer: (A) Mortgage loans voluntarily serviced by the servicer for a creditor or assignee that is not an affiliate of the servicer and for which the servicer does not receive any compensation or fees; (B) reverse mortgage transactions; and (C) mortgage loans secured by consumers' interests in timeshare plans. In the 2013 Mortgage Servicing Final Rules, the Bureau concluded that a separate exemption for nonprofits was not necessary because the Bureau believed that nonprofits would likely fall within the small servicer exemption. See 78 FR 10695, 10720 (Feb. 14, 2013).

As part of the Bureau's Implementation Plan, the Bureau has learned that certain nonprofit entities may, for a fee, service loans for another nonprofit entity that is the creditor on the loan. The Bureau understands that, in some cases, these nonprofit entities are part of a larger association of nonprofits that are separately incorporated but operate under mutual contractual obligations to serve the same charitable mission, and that use a common name, trademark, or servicemark. These entities likely do not meet the definition of “affiliate” under the BHCA due to the limits imposed on nonprofits with respect to ownership and control. Accordingly, these nonprofits likely do not qualify for the small servicer exemption because they service, for a fee, loans on behalf of an entity that is not an affiliate as defined under the BHCA (and because the servicer is neither the creditor for, nor an assignee of, those loans).

The Bureau understands that groups of nonprofit entities that are associated with one another may consolidate servicing activities to achieve economies of scale necessary to service loans cost-effectively, and that such costs savings may reduce the cost of credit or enable the nonprofit to extend a greater number of loans overall. However, because of their corporate structures, such groups of nonprofit entities have a more difficult time than related for-profit servicers qualifying for the small servicer exemption. For the reasons discussed below, the Bureau believes that the ability of such nonprofit entities to consolidate servicing activities may be beneficial to consumers—e.g., to the extent servicing cost savings are passed on to consumers and/or lead to increased credit availability—and may outweigh the consumer protections provided by the servicing rules to those consumers affected by this proposal.

Accordingly, the Bureau is proposing an alternative definition of small servicer that would apply to nonprofit entities that service loans on behalf of other nonprofits within a common network or group of nonprofit entities. Specifically, proposed § 1026.41(e)(4)(ii)(C) provides that a small servicer is a nonprofit entity that services 5,000 or fewer mortgage loans, including any mortgage loans serviced on behalf of associated nonprofit entities, for all of which the servicer or an associated nonprofit entity is the creditor. Proposed § 1026.41(e)(4)(ii)(C)(1) provides that, for purposes of proposed § 1026.41(e)(4)(ii)(C), the term “nonprofit entity” means an entity having a tax exemption ruling or determination letter from the Internal Revenue Service under section 501(c)(3) of the Internal Revenue Code of 1986. See 26 U.S.C. 501(c)(3); 26 CFR 1.501(c)(3)-1. Proposed § 1026.41(e)(4)(ii)(C)(2) defines “associated nonprofit entities” to mean nonprofit entities that by agreement operate using a common name, trademark, or servicemark to further and support a common charitable mission or purpose.

The Bureau is also proposing technical changes to § 1026.41(e)(4)(iii), which addresses the timing of the small servicer determination and also excludes certain loans from the 5,000-loan limitation. The proposed changes would add language to the existing timing requirement to limit its application to the small servicer determination for purposes of § 1026.41(e)(4)(ii)(A) and insert a separate timing requirement for purposes of determining whether a nonprofit servicer is a small servicer pursuant to § 1026.41(e)(4)(ii)(C). Specifically, that requirement would provide that the servicer is evaluated based on the mortgage loans serviced by the servicer as of January 1 and for the remainder of the calendar year.

The Bureau is proposing technical changes to comment 41(e)(4)(ii)-2 in light of proposed § 1026.41(e)(4)(ii)(C). In addition, the Bureau is proposing to add a comment to parallel existing comment 41(e)(4)(ii)-2 (that addresses the requirements to be a small servicer under the existing definition in § 1026.41(e)(4)(ii)(A)). Specifically, new comment 41(e)(4)(ii)-4 would clarify that there are two elements to satisfying the nonprofit small creditor definition in proposed § 1026.41(e)(4)(ii)(C). First, the comment would clarify that a nonprofit entity must service 5,000 or fewer mortgage loans, including any mortgage loans serviced on behalf of associated nonprofit entities. For each associated nonprofit entity, the small servicer determination is made separately without consideration of the number of loans serviced by another associated nonprofit entity. Second, the comment would further explain that the nonprofit entity must service only mortgage loans for which the servicer (or an associated nonprofit entity) is the creditor. To be the creditor, the servicer (or an associated nonprofit entity) must have been the entity to which the mortgage loan obligation was initially payable (that is, the originator of the mortgage loan). The comment would explain that a nonprofit entity is not a small servicer under § 1026.41(e)(4)(ii)(C) if it services any mortgage loans for which the servicer or an associated nonprofit entity is not the creditor (that is, for which the servicer or an associated nonprofit entity was not the originator). The comment would provide two examples to demonstrate the application of the small servicer definition under § 1026.41(e)(4)(ii)(C).

The Bureau is also proposing to revise existing comment 41(e)(4)(iii)-3 to specify that it explains the application of § 1026.41(e)(4)(iii) to the small servicer determination under § 1026.41(e)(4)(ii)(A) specifically. As revised, comment 41(e)(4)(iii)-3 would explain that mortgage loans that are not considered pursuant to § 1026.41(e)(4)(iii) for purposes of the small servicer determination under § 1026.41(e)(4)(ii)(A) are not considered either for determining whether a servicer (together with any affiliates) services 5,000 or fewer mortgage loans or whether a servicer is servicing only mortgage loans that it (or an affiliate) owns or originated. The proposal would also make clarifying changes to the example provided in comment 41(e)(4)(iii)-3 and would move language in existing comment 41(e)(4)(iii)-3 regarding the limited role of voluntarily serviced mortgage loans to new proposed comment 41(e)(4)(iii)-5. The Bureau is also proposing technical changes to comment 41(e)(4)(iii)-2 in light of proposed § 1026.41(e)(4)(ii)(C).

In addition, the Bureau is proposing a new comment 41(e)(4)(iii)-4 to explain the application of § 1026.41(e)(4)(iii) to the nonprofit small servicer determination under proposed § 1026.41(e)(4)(ii)(C) specifically. The proposed comment would explain that mortgage loans that are not considered pursuant to § 1026.41(e)(4)(iii) for purposes of the small servicer determination under § 1026.41(e)(4)(ii)(C) are not considered either for determining whether a nonprofit entity services 5,000 or fewer mortgage loans, including any mortgage loans serviced on behalf of associated nonprofit entities, or whether a nonprofit entity is servicing only mortgage loans that it or an associated nonprofit entity originated. The comment would provide an example of a nonprofit entity that services 5,400 mortgage loans. Of these mortgage loans, it originated 2,800 mortgage loans and associated nonprofit entities originated 2,000 mortgage loans. The nonprofit entity receives compensation for servicing the loans originated by associated nonprofits. The nonprofit entity also voluntarily services 600 mortgage loans that were originated by an entity that is not an associated nonprofit entity, and receives no compensation or fees for servicing these loans. The voluntarily serviced mortgage loans are not considered in determining whether the servicer qualifies as a small servicer. Thus, because only the 4,800 mortgage loans originated by the nonprofit entity or associated nonprofit entities are considered in determining whether the servicer qualifies as a small servicer, the servicer qualifies for the small servicer exemption pursuant to § 1026.41(e)(4)(ii)(C) with regard to all 5,400 mortgage loans it services.

The Bureau believes that nonprofit entities are an important source of credit, particularly for low- and moderate-income consumers. The Bureau understands that nonprofit entities, while they may operate under a common name, trademark, or servicemark, are not typically structured to meet the definition of affiliate under the BHCA. However, nonprofit entities derive less revenue than other creditors or servicers from their lending activities, and therefore the Bureau believes associated nonprofit entities may seek to coordinate activities—including loan servicing—as a means of achieving economies of scale.

Under the existing rule, a servicer qualifies for the small servicer exemption if it services for a fee a loan for which another entity is the creditor or assignee, so long as both entities are affiliates under the BHCA and the servicer and its affiliates together service 5,000 or fewer mortgage loans. Since nonprofit entities are not typically structured to meet the definition of affiliate under the BHCA, a nonprofit entity that services, for a fee, even a single loan of an associated nonprofit entity likely would not qualify as a small servicer under the current rule. The Bureau is proposing an alternative small servicer definition for nonprofits to permit associated nonprofit entities to enter into the type of servicing arrangements, such as consolidation of servicing activities, that are available to affiliates under the current rule.

The limitation in the current rule to BHCA affiliates may discourage consolidation of servicing among associated nonprofits, even though such consolidation may benefit consumers by increasing access to credit and reducing the cost of credit for low- and moderate-income consumers for whom nonprofits are an important source of credit. In addition, consolidating servicing in one entity within the associated nonprofit structure may enhance the nonprofit's ability to promptly credit payments, administer escrow account obligations, or handle error requests or other requirements under Regulations X and Z, which are applicable regardless of small servicer status. In addition, though small servicers are exempt from the requirements of §§ 1024.38 through 1024.40, as well as most of the loss mitigation provisions under § 1024.41, the Bureau believes that delinquent borrowers may nonetheless benefit from consolidated nonprofit servicers' enhanced ability to devote trained staff to their situation.

The Bureau is concerned that if nonprofit servicers are subject to all of the servicing rules, low- and moderate-income consumers may face increased costs or reduced access to credit. Although the Bureau believes the servicing rules provide important protections for consumers, the Bureau is concerned that these protections may not outweigh the risk of reduction in credit access for low- and moderate-income consumers served by nonprofit entities that qualify for the proposed § 1026.41(e)(4)(ii)(C) exemption. Furthermore, the Bureau believes these nonprofit entities, because of their scale and community-focused lending programs, already have incentives to provide high levels of customer contact and information—incentives that warrant exempting those servicers from complying with the periodic statement requirements under Regulation Z and certain requirements of Regulation X discussed above.

The Bureau has narrowly tailored the proposed small servicer definition for nonprofits to prevent evasion of the servicing rules. For example, the proposed definition contains restrictions on nonprofits and requires that a substantial relationship exist among the associated nonprofits to qualify for the exemption. As noted above, the definition would be limited to groups of nonprofits that share a common name, trademark, or servicemark to further and support a common charitable mission or purpose. The Bureau believes that requiring such commonality reduces the risk that the small servicer definition will be used to circumvent the servicing rules. However, the Bureau seeks comment on whether the proposed definition of “associated nonprofit entities” is appropriate.

The Bureau has further limited the scope of the proposed nonprofit small servicer definition to entities designated with an exemption under 501(c)(3) of the Internal Revenue Code. As the Bureau noted in the January 2013 ATR Proposal, the Bureau believes that 501(c)(3)-designated entities face particular constraints on resources that other tax-exempt organizations may not. See 78 FR 6621, 6644-45 (Jan. 30, 2013). As a result, these entities may have fewer resources to comply with additional rules. In addition, tax-exempt status under section 501(c)(3) requires a formal determination by the government, in contrast to other types of tax-exempt status. Accordingly, limiting the proposed nonprofit small servicer provision to those entities with IRS tax exempt determinations for wholly charitable organizations may help to ensure that the nonprofit small servicer status is not used to evade the servicing rules. However, the Bureau solicits comment on whether limitation of the definition of “nonprofit entity” for purposes of § 1026.41(e)(4)(ii)(C) to entities with a tax exemption ruling or determination letter from the Internal Revenue Service under section 501(c)(3) of the Internal Revenue Code is appropriate. The Bureau also seeks comment on whether it is appropriate to include additional criteria regarding the nonprofit entity's activities or the loans' features or purposes, such as those in the nonprofit exemption from the ability to repay requirements in § 1026.43(a)(3)(v)(D) or in other statutory or regulatory schemes.

As noted above, the proposed alternative small servicer definition in § 1026.41(e)(4)(ii)(C) would apply to nonprofit entities that service 5,000 or fewer mortgage loans. The Bureau believes that it is necessary, in general, to limit the number of loans serviced by small servicers to prevent evasion of the servicing rules and because the Bureau believes that entities servicing more than 5,000 mortgage loans are of a sufficient size to comply with the full set of servicing rules. However, the proposed rule would apply that loan limitation to associated nonprofit entities differently than to affiliates. Specifically, the definition of small servicer in § 1026.41(e)(4)(ii)(A) counts towards the 5,000-loan limitation all loans serviced by the servicer together with all loans serviced by any affiliates. In contrast, the proposed rule for nonprofit entities would count towards the 5,000-loan limitation only the loans serviced by a given nonprofit entity (including loans it services on behalf of associated nonprofit entities), and would not consider loans serviced by associated nonprofit entities. As noted above, the Bureau is concerned that small servicers generally lack the ability to cost-effectively comply with the full set of servicing rules, a concern that is heightened in the context of nonprofit small servicers which derive less revenue than other creditors or servicers from their lending activities. Some nonprofits may consolidate servicing activities to achieve economies of scale across associated nonprofits. However, the Bureau is also concerned that other nonprofits may be structured differently and that for these nonprofit entities maintaining servicing at the individual nonprofit level may be more appropriate. For this reason, the Bureau does not believe it is appropriate to consider all loans serviced across the associated nonprofit enterprise towards the 5,000-loan limitation. The Bureau seeks comment on whether it is appropriate to count only loans serviced by a single nonprofit or whether the small servicer determination should be made based upon all loans serviced among a group of associated nonprofits.

The proposed exemption would also apply only to a nonprofit entity that services loans for which it or an associated nonprofit entity is the creditor. In contrast with the exemption under § 1026.41(e)(4)(ii)(A), the proposed exemption would not apply to a nonprofit entity that services loans for which it or an associated nonprofit entity is the assignee of the loans being serviced. The Bureau believes that nonprofit entities typically do not service loans for which an entity other than that nonprofit entity or an associated nonprofit is the creditor, nor does the Bureau believe that nonprofit entities typically take an assignment of a loan originated by an entity other than an associated nonprofit entity. Further, the Bureau is concerned that a rule that permits a nonprofit servicer to service for a fee loans that were originated by someone other than itself or an associated nonprofit entity while retaining the benefit of the exemption could be used to evade the servicing rules, particularly since the proposed rule would not consider loans serviced by associated nonprofit entities as counting towards the 5,000-loan limit. The Bureau seeks comment on whether limiting the exemption to loans for which the servicer or an associated nonprofit entity is the creditor is appropriate.

Legal Authority

The Bureau is proposing to exempt nonprofit small servicers from the periodic statement requirement under TILA section 128(f) pursuant to its authority under TILA section 105(a) and (f), and Dodd-Frank Act section 1405(b).

For the reasons discussed above, the Bureau believes the proposed exemption is necessary and proper under TILA section 105(a) to facilitate TILA compliance. The purpose of the periodic statement requirement is to ensure that consumers receive ongoing customer contact and account information. As discussed above, the Bureau believes that nonprofit entities that qualify for the exemption have incentives to provide ongoing consumer contact and account information that would exist absent a regulatory requirement to do so. The Bureau also believes that such nonprofits may consolidate servicing functions in an associated nonprofit entity to cost-effectively provide this high level of customer contact and otherwise comply with applicable regulatory requirements. As described above, the Bureau is concerned that the current rule may discourage consolidation of servicing functions. As a result, the current rule may result in nonprofits being unable to provide high-contact servicing or to comply with other applicable regulatory requirements due to the costs that would be imposed on each individual servicer. Accordingly, the Bureau believes the proposed nonprofit small servicer definition facilitates compliance with TILA by allowing nonprofit small servicers to consolidate servicing functions, without losing status as a small servicer, in order to cost-effectively service loans in compliance with applicable regulatory requirements.

In addition, consistent with TILA section 105(f) and in light of the factors in that provision, for a nonprofit entity servicing 5,000 or fewer loans, including those serviced on behalf of associated nonprofits, all of which that servicer or an associated nonprofit originated, the Bureau believes that requiring them to comply with the periodic statement requirement in TILA section 128(f) would not provide a meaningful benefit to consumers in the form of useful information or protection. The Bureau believes, as noted above, that these nonprofit servicers have incentives to provide consumers with necessary information, and that requiring provision of periodic statements would impose significant costs and burden. Specifically, the Bureau believes that the proposal will not complicate, hinder, or make more expensive the credit process—and is proper without regard to the amount of the loan, to the status of the consumer (including related financial arrangements, financial sophistication, and the importance to the consumer of the loan or related supporting property), or to whether the loan is secured by the principal residence of the consumer. In addition, consistent with Dodd-Frank Act section 1405(b), for the reasons discussed above, the Bureau believes that exempting nonprofit small servicers from the requirements of TILA section 128(f) would be in the interest of consumers and in the public interest.

As noted above, current Regulation X cross-references the definition of small servicer in § 1026.41(e)(4) for the purpose of exempting small servicers from several mortgage servicing requirements. Accordingly, in proposing to amend that definition, the Bureau is also proposing to amend the current Regulation X exemptions for small servicers. For this purpose, the Bureau is relying on the same authorities on which it relied in promulgating the current Regulation X small servicer exemptions. Specifically, the Bureau is proposing to exempt nonprofit small servicers from the requirements of Regulation X §§ 1024.38 through 41, except as otherwise provided in § 1024.41(j), see § 1024.30(b)(1), as well as certain requirements of § 1024.17(k)(5), pursuant to its authority under section 19(a) of RESPA to grant such reasonable exemptions for classes of transactions as may be necessary to achieve the consumer protection purposes of RESPA. The consumer protection purposes of RESPA include helping borrowers avoid unwarranted or unnecessary costs and fees. The Bureau believes that the proposed rule would ensure consumers avoid unwarranted and unnecessary costs and fees by encouraging nonprofit small servicers to consolidate servicing functions.

In addition, the Bureau relies on its authority pursuant to section 1022(b) of the Dodd-Frank Act to prescribe regulations necessary or appropriate to carry out the purposes and objectives of Federal consumer financial law, including the purposes and objectives of Title X of the Dodd-Frank Act. Specifically, the Bureau believes that the proposed rule is necessary and appropriate to carry out the purpose under section 1021(a) of the Dodd-Frank Act of ensuring that all consumers have access to markets for consumer financial products and services that are fair, transparent, and competitive, and the objective under section 1021(b) of the Dodd-Frank Act of ensuring that markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.

With respect to §§ 1024.17(k)(5), 39, and 41 (except as otherwise provided in § 1024.41(j)), the Bureau is also proposing the nonprofit small servicer definition pursuant to its authority in section 6(j)(3) of RESPA to set forth requirements necessary to carry out section 6 of RESPA and in section 6(k)(1)(E) of RESPA to set forth obligations appropriate to carry out the consumer protection purposes of RESPA.

The Bureau is proposing to amend the nonprofit small creditor exemption from the ability-to-repay rule that is set forth in § 1026.43(a)(3)(v)(D) of Regulation Z. To qualify for this exemption, a creditor must have extended credit secured by a dwelling no more than 200 times during the calendar year preceding receipt of the consumer's application. The proposal would exclude certain subordinate-lien transactions from this credit extension limit.

Section 129C(a)(1) of TILA states that no creditor may make a residential mortgage loan unless the creditor makes a reasonable and good faith determination (based on verified and documented information) that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan, according to its terms, and all applicable taxes, insurance (including mortgage guarantee insurance), and assessments. 15 U.S.C. 1639c(a)(1). Section 1026.43 of Regulation Z implements the ability-to-repay provisions of section 129C of TILA.

The January 2013 ATR Final Rule implemented statutory exemptions from the ability-to-repay provisions for home equity lines of credit subject to 12 CFR 1026.40, and for mortgage transactions secured by a consumer's interest in a timeshare plan, as defined in 11 U.S.C. 101(53D). See 12 CFR 1026.43(a). The rule also exempted from the ability-to-repay requirements (1) a transaction that is a reverse mortgage subject to 12 CFR 1026.33, (2) temporary or “bridge” loans with a term of 12 months or less, and (3) a construction phase of 12 months or less of a construction-to-permanent loan.

The January 2013 ATR Final Rule did not provide additional exemptions sought by certain commenters in response to an earlier proposal published by the Board in 2011. See 76 FR 27389 (May 11, 2011) (2011 ATR Proposal). However, the January 2013 ATR Proposal sought additional input on some of those exemptions, and contained a specific proposal to exempt certain nonprofit creditors from the ability-to-repay requirements. The Bureau believed that limiting the proposed exemption to creditors designated as nonprofits was appropriate because of the difference in lending practices between nonprofit and other creditors. The proposed exemption was premised on the belief that the additional costs imposed by the ability-to-repay requirements might prompt some nonprofit creditors to cease extending credit, or substantially limit their credit activities, thereby possibly harming low- to moderate-income consumers. The Bureau further stated that for-profit creditors derive more revenue from mortgage lending activity than nonprofit creditors, and therefore presumably are more likely to have the resources to comply with the ability-to-repay requirements.

The Bureau was concerned that an exemption for all nonprofit creditors could allow irresponsible creditors to intentionally circumvent the ability-to-repay requirements and harm consumers. Thus, under the January 2013 ATR Proposal, the exemption would have been available only if the creditor and the loan met certain criteria. First, the creditor would have been required to have a tax exemption ruling or determination letter from the Internal Revenue Service under section 501(c)(3) of the Internal Revenue Code of 1986 to be eligible for the proposed exemption. Second, the creditor could not have extended credit secured by a dwelling more than 100 times in the calendar year preceding receipt of the consumer's application. Third, the creditor, in the calendar year preceding receipt of the consumer's application, must have extended credit only to consumers whose income did not exceed the low- and moderate-income household limit established by HUD. Fourth, the extension of credit must have been to a consumer with income that does not exceed HUD's low- and moderate-income household limit. Fifth, the creditor must have determined, in accordance with written procedures, that the consumer has a reasonable ability to repay the extension of credit.

The Bureau believed that, in contrast to for-profit creditors and other nonprofit creditors, the nonprofit creditors identified in § 1026.43(a)(3)(v)(D) appeared to elevate long-term community stability over the creditor's economic considerations and to have stronger incentives to determine whether a consumer has the ability to repay a mortgage loan. The Bureau solicited comment regarding whether the proposed exemption was appropriate. The Bureau also specifically requested feedback on whether the proposed credit extension limit of 100 transactions was appropriate or should be increased or decreased. The Bureau also requested comment on the costs that would be incurred by nonprofit creditors that exceed that limit; the extent to which these additional costs would affect the ability of nonprofit creditors to extend responsible, affordable credit to low- and moderate-income consumers; and whether consumers could be harmed by the proposed exemption.

Comments Concerning the 100-Credit Extension Limit

The Bureau received many comments regarding the proposed nonprofit exemption. See 78 FR 35429, 35466-67 (June 12, 2013). Most commenters who supported the proposed exemption urged the Bureau to adopt conditions to prevent creditors from using the exemption to circumvent the rule. While many industry representatives, consumer advocates, and nonprofits believed that a 100-credit extension limit would discourage sham nonprofit creditors from exploiting the exemption, several of these commenters asked the Bureau to raise the limit. The commenters were primarily concerned that, in response to the proposed limit, nonprofit creditors would limit certain types of lending. Specifically, a few commenters stated that nonprofit creditors that offer both home-purchase mortgage loans and small-dollar mortgage loans, such as for home energy improvement, would limit small-dollar lending to remain under the 100-credit extension limitation.

The Nonprofit Exemption as Adopted

The May 2013 ATR Final Rule finalized the nonprofit exemption substantially as proposed, but raised the credit extension limit from 100 to 200 credit extensions in the calendar year preceding receipt of the consumer's application. See 78 FR 35429, 35467-69 (June 12, 2013). In finalizing the exemption, the Bureau noted that most commenters believed a credit extension limitation was necessary to prevent unscrupulous creditors from exploiting the exemption. The Bureau concluded that the risks of evasion warranted adopting the limit. The Bureau was concerned, however, that the proposed 100-credit extension limit would effectively restrict nonprofits to 50 home-purchase transactions per year, because nonprofits frequently provide simultaneous primary- and subordinate-lien financing for such transactions. Also, the Bureau was concerned that the proposed limit would reduce certain types of small-dollar lending by nonprofits, including financing home energy improvements.

Accordingly, the Bureau included a 200-credit extension limit in the final rule to address the concerns raised by commenters regarding access to credit. Some commenters had suggested limits as high as 500 credit extensions per year; however, the Bureau believed that creditors originating more than 200 dwelling-secured credit extensions per year generally have the resources to bear the implementation and compliance burden associated with the ability-to-repay requirements, such that they can continue to lend without negative impacts on consumers. The final rule did not distinguish between first- and subordinate-liens for purposes of the exemption, as some commenters suggested. The Bureau believed that such a distinction would be needlessly restrictive and it would be more efficient to allow nonprofit creditors to determine the most efficient allocation of funds between primary- and subordinate-lien financing.

Response to the May 2013 ATR Final Rule and Further Proposal

Since the adoption of the May 2013 ATR Final Rule, the Bureau has heard concerns from some nonprofit creditors about the treatment of certain subordinate-lien programs under the nonprofit exemption from the ability-to-repay requirements. These creditors are concerned that they may be forced to curtail these subordinate-lien programs or more generally limit their lending activities to avoid exceeding the 200-credit extension limit. In particular, these entities have indicated concern with the treatment of subordinate-lien transactions that charge no interest and for which repayment is generally either forgivable or of a contingent nature. The Bureau understands that, absent an amended nonprofit exemption from the May 2013 ATR Final Rule, these nonprofit creditors may not have the resources to comply with the rule and therefore are likely to curtail their lending to stay within the 200-credit extension limit.

In light of these concerns, the Bureau is proposing to exclude certain deferred or contingent, interest-free subordinate liens from the 200-credit extension limit for purposes of the nonprofit exemption in § 1026.43(a)(3)(v)(D). Specifically, proposed § 1026.43(a)(3)(vii) would provide that consumer credit transactions that meet the following criteria are not considered in determining whether a creditor meets the requirements of § 1026.43(a)(3)(v)(D)(1): (A) The transaction is secured by a subordinate lien; (B) the transaction is for the purpose of downpayment, closing costs, or other similar home buyer assistance, such as principal or interest subsidies, property rehabilitation assistance, energy efficiency assistance, or foreclosure avoidance or prevention; (C) the credit contract does not require payment of interest; (D) the credit contract provides that the repayment of the amount of credit extended is (1) forgiven incrementally or in whole, at a date certain, and subject only to specified ownership and occupancy conditions, such as a requirement that the consumer maintain the property as the consumer's principal dwelling for five years, (2) deferred for a minimum of 20 years after consummation of the transaction, (3) deferred until sale of the property securing the transaction, or (4) deferred until the property securing the transaction is no longer the principal dwelling of the consumer; (E) the total of costs payable by the consumer in connection with the transaction at consummation is less than 1 percent of the amount of credit extended and includes no charges other than fees for recordation of security instruments, deeds, and similar documents; a bona fide and reasonable application fee; and a bona fide and reasonable fee for housing counseling services; and (F) in connection with the transaction, the creditor complies with all other applicable requirements of Regulation Z.

Proposed comment 43(a)(3)(vii)-1 would provide that the terms of the credit contract must satisfy the conditions that the transaction not require the payment of interest under § 1026.43(a)(3)(vii)(C) and that repayment of the amount of credit extended be forgiven or deferred in accordance with § 1026.43(a)(3)(vii)(D). The comment would further provide that the other requirements of § 1026.43(a)(3)(vii) need not be reflected in the credit contract, but the creditor must retain evidence of compliance with those provisions, as required by the record retention provisions of § 1026.25(a). In particular, the creditor must have information reflecting that the total of closing costs imposed in connection with the transaction are less than 1 percent of the amount of credit extended—and include no charges other than recordation, application, and housing counseling fees, in accordance with § 1026.43(a)(3)(vii)(E). Unless an itemization of the amount financed sufficiently details this requirement, the creditor must establish compliance with § 1026.43(a)(3)(vii)(E) by some other written document and retain it in accordance with § 1026.25(a).

Proposed § 1026.43(a)(3)(vii) and the accompanying comment largely mirror a provision that was finalized as part of the Bureau's December 2013 TILA-RESPA Final Rule. See 78 FR 79729 (Dec. 31, 2013). That provision, which was finalized in both Regulation X, at § 1024.5(d), and Regulation Z, at § 1026.3(h)—and which will take effect on August 1, 2015, provides a partial exemption from the integrated disclosure requirements for loans that meet the above-described criteria. The Bureau finalized this partial exemption in the December 2013 TILA-RESPA Final Rule to preserve an existing exemption from Regulation X issued by HUD and to facilitate compliance with TILA and RESPA. See 78 FR 79729, 79758 and 79772 (Dec. 31, 2013). In proposing that exemption, the Bureau explained that the exemption was intended to describe criteria associated with certain housing assistance loan programs for low- and moderate-income persons. See 77 FR 51115, 51138 (Aug. 23, 2012). The Bureau believes the same criteria describe the class of transactions that may appropriately be excluded from the 200-credit extension limit in the ability-to-repay exemption for nonprofits. The Bureau also believes that defining a single class of transactions for purposes of § 1024.5(d), § 1026.3(h), and § 1026.43(a)(3)(vii) may facilitate compliance for creditors.

The Bureau believes the § 1026.43(a)(3)(v)(D) exemption as amended by the proposal would be limited to creditors with characteristics that ensure consumers are offered responsible, affordable credit on reasonably repayable terms. The Bureau also believes that subordinate-lien transactions meeting the proposed exclusion's criteria pose low risk to consumers, and that excluding these transactions from the credit extension limit is consistent with TILA's purposes. For example, in transactions that would be covered by proposed § 1026.43(a)(3)(vii), consumers often benefit from a reduction in their repayment obligations on an accompanying first-lien mortgage and often control the triggering of any subordinate-lien repayment requirement for at least a twenty-year period. Therefore, the subordinate-lien transactions may enhance the consumer's ability to repay their monthly mortgage obligations. Further, the prohibition against charging interest and strict limitation on fees reduces the likelihood that borrowers will be misled about the extent of their financial obligations, as the amounts of their obligations (if at all repayable) remain essentially fixed. The Bureau believes that limiting the exclusion to loans with these characteristics may also reduce the likelihood that the provision would be used to evade the ability-to-repay requirements.

The Bureau also believes the proposed exclusion would facilitate access to credit for low- and moderate-income consumers. As noted above, the proposed exclusion would apply to subordinate-lien financing extended only for specified purposes, including home buyer assistance, property rehabilitation, or foreclosure avoidance. The Bureau believes that such financing plays a critical role in nonprofit lending to low- and moderate-income consumers, and in particular homeownership programs designed for such consumers. In purchase-money transactions, subordinate-lien financing may reduce the amortizing payment on first-lien mortgages, improving low- and moderate-income consumers' ability to repay, especially in jurisdictions where housing costs are high. Similarly, the Bureau believes such financing may play a critical role in nonprofit creditors' efforts to provide property-rehabilitation, energy-efficiency, and foreclosure-avoidance assistance.

The Bureau believes that, without the proposed exclusion for these transactions, nonprofit creditors may limit such extensions of credit, or may limit their overall credit activity. As a result, low- and moderate-income consumers who would otherwise qualify for a nonprofit creditor's program may be denied credit. As noted in the January 2013 ATR Proposal, the current exemption for nonprofit creditors was premised on the belief that the additional costs imposed by the ability-to-repay requirements might prompt certain nonprofit creditors to cease extending credit, or substantially limit their credit activities, thereby possibly harming low- and moderate-income consumers. See 78 FR 6621, 6645 (Jan. 30, 2013). Because of their limited resources to bear the compliance burden of the ability-to-repay rule, the Bureau believes at least some nonprofit creditors may limit lending activity to maintain their exemption. The proposed amendment to the § 1026.43(a)(3)(v)(D) exemption is intended to minimize this effect by allowing nonprofit creditors to originate subordinate-lien transactions meeting the proposed § 1026.43(a)(3)(vii) criteria without the risk of losing that exemption.

In addition, the Bureau believes that excluding these subordinate-lien transactions from the transaction-count limitation may be appropriate because the origination of these loans is not necessarily indicative of a creditor's capacity to comply with the ability-to-repay requirements. As noted above, the Bureau believes that creditors extending credit in more than 200 dwelling-secured transactions per year are likely to have the resources and capacity to comply with the ability-to-repay requirements. However, subordinate-lien transactions typically involve small loan amounts and, as limited by the proposed exclusion's criteria, would generate little revenue to support a creditor's capacity to comply. Absent the exclusion, those creditors might curtail lending—with potential negative impacts for consumer's access to credit. Particularly when such a subordinate-lien transaction is originated in connection with a first-lien transaction, counting both transactions towards the 200-credit extension limit may not provide the appropriate indication of a creditor's capacity to comply.

As noted above, in adopting the current nonprofit exemption in § 1026.43(a)(3)(v)(D), the Bureau did not distinguish between first- and subordinate-lien transactions for purposes of the credit extension limit out of concerns that doing so would affect creditors' allocations of loans. However, the Bureau does not believe the proposed exclusion is likely to significantly affect such allocations. As noted above, the proposed exclusion permits nonprofit creditors to allocate resources to subordinate-lien transactions without risking their exemption from the ability-to-repay rule. To the extent the proposed exclusion encourages origination of these subordinate-lien transactions, the Bureau believes that the limitations on the borrower's repayment obligations as well as on the creditor's ability to charge interest and fees may minimize the risk that, as a result of the exclusion, creditors would allocate greater amounts of their lending to these transactions. In fact, to the extent many affordable homeownership programs use such subordinate-lien transactions in tandem with first-lien mortgages, excluding these subordinate-lien transactions from the credit extension limit count may reduce the current § 1026.43(a)(3)(v)(D) exemption's impact on nonprofit creditors' allocation of financing between first- and subordinate-lien transactions.

To address nonprofit creditor concerns, the Bureau also considered whether it would be appropriate to remove the credit extension limitation from the § 1026.43(a)(3)(v)(D) nonprofit exemption altogether. The Bureau believes that nonprofit creditors who originate 200 or more dwelling-secured transactions in a year generally have the resources necessary to comply with TILA ability-to-repay requirements. The Bureau believes that the exemption properly balances relevant considerations, including the nature of credit extended, safeguards and other factors that may protect consumers from harm, and the extent to which application of the regulatory requirements would affect access to responsible, affordable credit. Accordingly, the Bureau continues to believe that the credit extension limit is necessary to prevent evasion, but is proposing to exclude from the 200-credit extension limit a narrow class of subordinate-lien transactions to address concerns expressed by nonprofit creditors and avoid potential negative impacts on access to credit, particularly for low- and moderate-income consumers.

Legal Authority

The current § 1026.43(a)(3)(v)(D) exemption from the ability-to-repay requirements was adopted pursuant to the Bureau's authority under section 105(a) and (f) of TILA. Pursuant to section 105(a) of TILA, the Bureau generally may prescribe regulations that provide for such adjustments and exceptions for all or any class of transactions that the Bureau judges are necessary or proper to effectuate, among other things, the purposes of TILA. For the reasons discussed in more detail above, the Bureau believes that the proposed amendment of the current § 1026.43(a)(3)(v)(D) exemption from the TILA ability-to-repay requirements is necessary and proper to effectuate the purposes of TILA, which include the purposes of TILA section 129C. The Bureau believes that the proposed amendment of the exemption ensures that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay by helping to ensure the viability of the mortgage market for low- and moderate-income consumers. The Bureau believes that the mortgage loans originated by nonprofit creditors identified in § 1026.43(e)(4)(v)(D) generally account for a consumer's ability to repay. Without the proposed amendment to the exemption, the Bureau believes that low- and moderate-income consumers might be at risk of being denied access to the responsible and affordable credit offered by these creditors, which is contrary to the purposes of TILA. The proposed amendment to the exemption is consistent with the purposes of TILA by ensuring that consumers are able to obtain responsible, affordable credit from the nonprofit creditors discussed above.

The Bureau has considered the factors in TILA section 105(f) and believes that, for the reasons discussed above, the proposed amendment of the exemption is appropriate under that provision. For the reasons discussed above, the Bureau believes that the proposed amendment to § 1026.43(a)(3)(v)(D) would exempt extensions of credit for which coverage under the ability-to-repay requirements does not provide a meaningful benefit to consumers (in the form of useful information or protection) in light of the protection that the Bureau believes the credit extended by these creditors already provides to consumers. The Bureau believes that the proposed amendment to the § 1026.43(a)(3)(v)(D) exemption is appropriate for all affected consumers, regardless of their other financial arrangements and financial sophistication and the importance of the loan and supporting property to them. Similarly, the Bureau believes that the proposed amendment to the § 1026.43(a)(3)(v)(D) exemption is appropriate for all affected loans covered under the exemption, regardless of the amount of the loan and whether the loan is secured by the principal residence of the consumer. Furthermore, the Bureau believes that, on balance, the proposed amendment to the § 1026.43(a)(3)(v)(D) exemption will simplify the credit process without undermining the goal of consumer protection, denying important benefits to consumers, or increasing the expense of (or otherwise hindering) the credit process.

The Dodd-Frank Act provides that “qualified mortgages” are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements. The qualified mortgage provisions are implemented in § 1026.43(e). Current § 1026.43(e)(3)(i) provides that a covered transaction is not a qualified mortgage if the transaction's total points and fees exceed certain limits set forth in § 1026.43(e)(3)(i)(A) through (E). For the reasons set forth below, the Bureau is proposing to permit a creditor or assignee to cure an inadvertent excess over the qualified mortgage points and fees limits by refunding to the consumer the amount of excess, under certain conditions. As discussed in part VI.A. below, the Bureau is also requesting comment on issues related to inadvertent debt-to-income ratio overages, but at this time is not proposing a specific change to the regulation. For purposes of these discussions, “cure” means a procedure to reduce points and fees or debt-to-income ratios after consummation when the qualified mortgage limits have been inadvertently exceeded, while “correction” means post-consummation revisions to documentation or calculations, or both, to reflect conditions as they actually existed at consummation.

43(e)(3)(i)

As discussed below, the Bureau is proposing a new § 1026.43(e)(3)(iii) to establish a cure procedure where a creditor inadvertently exceeds the qualified mortgage points and fees limits, under certain conditions. As a conforming change, the Bureau is also proposing to amend § 1026.43(e)(3)(i), to add the introductory phrase “Except as provided in paragraph (e)(3)(iii) of this section” to § 1026.43(e)(3)(i), to specify that the cure provision in proposed § 1026.43(e)(3)(iii) is an exception to the general rule that a covered transaction is not a qualified mortgage if the transaction's total points and fees exceed the applicable limit set forth in § 1026.43(e)(3)(i)(A) through (E).

43(e)(3)(iii)

Section 1411 of the Dodd-Frank Act added new TILA section 129C to require a creditor making a residential mortgage loan to make a reasonable and good faith determination (based on verified and documented information) that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan. 15 U.S.C. 1639c. TILA section 129C(b) further provides that the ability-to-repay requirements are presumed to be met if the loan is a qualified mortgage. TILA section 129C(b)(2) sets certain product-feature and underwriting requirements for qualified mortgages, including a 3-percent limit on points and fees, but gives the Bureau authority to revise, add to, or subtract from these requirements.15 Those requirements are implemented by the January 2013 ATR Final Rule, as amended by the May 2013 ATR Final Rule.

15See TILA section 129C(b)(3)(B)(i). TILA section 129C(b)(2)(D) requires the Bureau to prescribe rules adjusting the 3-percent points and fees limit to “permit lenders that extend smaller loans to meet the requirements of the presumption of compliance.”

The current ability-to-repay rule provides for four categories of qualified mortgages: a “general” qualified mortgage definition that is available to any creditor; 16 a temporary qualified mortgage definition for loans eligible for sale to or guarantee by a government sponsored enterprise (GSE) or eligible for guarantee by or insurance under certain Federal agency programs; 17 and two qualified mortgage definitions available to small creditors.18 The current rule provides that for all types of qualified mortgages, the up-front points and fees charged in connection with the mortgage must not exceed 3 percent of the total loan amount, with higher thresholds specified for various categories of loans below $100,000.19 Pursuant to § 1026.32(b)(1), points and fees are the “fees or charges that are known at or before consummation.”

16 12 CFR 1026.43(e)(2). Under the general qualified mortgage definition, the loan must meet certain restrictions on loan features, points and fees, and underwriting.

17 Section 1026.43(e)(4). The temporary GSE/agency qualified mortgage definition will sunset on the earlier of January 10, 2021, or, with respect to GSE-eligible loans, when the GSEs exit government conservatorship, or, with respect to agency-eligible loans, when those agencies' qualified mortgage definitions take effect.

18 Section 1026.43(e)(5) contains a special qualified mortgage definition for small creditors that hold loans in portfolio, while § 1026.43(f) permits small creditors that operate predominantly in rural or underserved areas to originate qualified mortgages with balloon-payment features, despite the general prohibition on qualified mortgages containing balloon payments. For a two-year transitional period, § 1026.43(e)(6) permits all small creditors, regardless of their areas of operation, to originate qualified mortgages with balloon-payment features. “Small creditor” is defined in § 1026.35(b)(2)(iii)(B) and (C), and generally includes creditors that, in the preceding calendar year, originated 500 or fewer covered transactions, including transactions originated by affiliates, and had less than $2 billion in assets.

19See § 1026.43(e)(2) and (3). For loans of $60,000 up to $100,000, § 1026.43(e)(3)(i) allows points and fees of no more than $3,000. For loans of $20,000 up to $60,000, § 1026.43(e)(3)(i) allows points and fees of no more than 5 percent of the total loan amount. For loans of $12,500 up to $20,000, § 1026.43(e)(3)(i) allows points and fees of no more than $1,000. For loan amounts less than $12,500, § 1026.43(e)(3)(i) allows points and fees of no more than 8 percent of the total loan amount.

The calculation of points and fees is complex and can involve the exercise of judgment that may lead to inadvertent errors with respect to charges imposed at or before consummation. For example, discount points may be mistakenly excluded from, or included in, the points and fees calculation as bona fide third-party charges, or bona fide discount points, under § 1026.32(b)(1)(i)(D) or (E). Mortgage insurance premiums under § 1026.32(b)(1)(i)(C) or loan originator compensation under § 1026.32(b)(1)(ii) may also mistakenly be excluded from, or included in, the points and fees calculation. A rigorous post-consummation review by the creditor or assignee of loans originated with the good faith expectation of qualified mortgage status may uncover such inadvertent errors. However, the current rule does not provide a mechanism for curing such inadvertent points and fees overages that are discovered after consummation.

Based on information received in the course of outreach in connection with the Bureau's Implementation Plan, the Bureau understands that some creditors may not originate, and some secondary market participants may not purchase, mortgage loans that are near the qualified mortgage limits on points and fees because of concern that the limits may be inadvertently exceeded at the time of consummation. Specifically, the Bureau understands that some creditors seeking to originate qualified mortgages may establish buffers, set at a level below the points and fees limits in § 1026.43(e)(3)(i), to avoid exceeding those limits. Those creditors may simply refuse to extend mortgage credit to consumers whose loans would exceed the buffer threshold, either due to the creditors' concerns about the potential liability attending loans originated under the general ability-to-repay standard or the risk of repurchase demands from the secondary market if the qualified mortgage points and fees limit is later found to have been exceeded. Where such buffers are established, the Bureau is concerned that access to credit for consumers seeking loans at the margins of the limits might be negatively affected. The Bureau is also concerned that creditors may increase the cost of credit for consumers seeking loans at the margins of the limits due to compliance or secondary market repurchase risk.

In light of these concerns, the Bureau is proposing to permit a creditor or assignee to cure an inadvertent excess over the qualified mortgage points and fees limit under certain defined conditions, including the requirement that the loan was originated in good faith as a qualified mortgage and that the cure be provided in the form of a refund to the consumer within 120 days after consummation. The Bureau notes that, where the loan was originated in good faith as a qualified mortgage, consumers likely received the benefit of qualified mortgage treatment by receiving lower overall loan pricing. For this reason, the Bureau believes that a cure provision, if appropriately limited, would reflect the expectations of both consumers and creditors at the time of consummation, would not result in significant consumer harm, and may increase access to credit by encouraging creditors to extend credit to consumers seeking loans at the margins of the points and fees limits. In addition, the Bureau believes that a limited cure provision may promote consistent pricing within the qualified mortgage range by decreasing the market's perceived need for higher pricing (due to compliance or secondary market repurchase risk) at the margins of the points and fees limits. The Bureau also believes this would promote stability in the market by limiting the need for repurchase demands that may otherwise be triggered without the proposed cure option.

The Bureau expects that, over time, creditors will develop greater familiarity with, and capabilities for, originating loans that are not qualified mortgages under the general ability-to-repay requirements, as well as greater confidence in general compliance systems. As they do so, creditors may relax internal buffers regarding points and fees that are predicated on the qualified mortgage threshold. However, the Bureau believes the impacts on access to credit may make a points and fees cure provision appropriate at this time. In addition, the Bureau believes that the cure provision will encourage post-consummation quality control review of loans, which will improve the origination process over time.

Accordingly, proposed § 1026.43(e)(3)(iii) would provide that if the creditor or assignee determines after consummation that the total points and fees payable in connection with a loan exceed the applicable limit under § 1026.43(e)(3)(i), the loan is not precluded from being a qualified mortgage if certain conditions, discussed below, are met.

43(e)(3)(iii)(A)

First, new § 1026.43(e)(3)(iii)(A) would require that the creditor originated the loan in good faith as a qualified mortgage and the loan otherwise meets the requirements of § 1026.43(e)(2), (e)(4), (e)(5), (e)(6), or (f), as applicable. Comment 43(e)(3)(iii)-1 would provide examples of circumstances that may be evidence that a loan was or was not originated in good faith as a qualified mortgage. First, the comment would provide that maintaining and following policies and procedures designed to ensure that points and fees are correctly calculated and do not exceed the applicable limit under § 1026.43(e)(3)(i) may be evidence that the creditor originated the loan in good faith as a qualified mortgage. In addition, the comment would provide that if the pricing on the loan is consistent with pricing on qualified mortgages originated contemporaneously by the same creditor, that may be evidence that the loan was originated in good faith as a qualified mortgage. The comment would also provide examples of circumstances that may be evidence that the loan was not originated in good faith as a qualified mortgage. Specifically, the comment would provide that, if a creditor does not maintain—or has but does not follow—policies and procedures designed to ensure that points and fees are correctly calculated and do not exceed the applicable limit described in § 1026.43(e)(3)(i), that may be evidence that the creditor did not originate the loan in good faith as a qualified mortgage. If the pricing on the loan is not consistent with pricing on qualified mortgages originated contemporaneously by the same creditor, that may also be evidence that a loan was not originated in good faith as a qualified mortgage.

The Bureau is proposing to allow for a post-consummation cure of points and fees overages only where the loan was originated in good faith as a qualified mortgage to ensure that the cure provision is available only to creditors who make inadvertent errors in the origination process and to prevent creditors from exploiting the cure provision by intentionally exceeding the points and fees limits. However, the Bureau seeks comment on whether the good faith element of § 1026.43(e)(3)(iii)(A) is necessary in light of the other proposed limitations on the cure provision. The Bureau also seeks comment on the proposed examples in comment 43(e)(3)(iii)-1, specifically including whether additional guidance regarding the term “contemporaneously” in comments 43(e)(3)-1.i.B and 43(e)(3)-1.ii.B is necessary, and whether additional examples would be useful.

43(e)(3)(iii)(B)

Second, to cure a points and fees overage, proposed § 1026.43(e)(3)(iii)(B) would require that within 120 days after consummation, the creditor or assignee refunds to the consumer the dollar amount by which the transaction's points and fees exceeded the applicable limit under § 1026.43(e)(3)(i) at consummation.

The Bureau believes that requiring a refund to occur within a short period after consummation is consistent with the requirement that the loan be originated in good faith as a qualified mortgage. The Bureau understands that many creditors and secondary market purchasers conduct audits or quality control reviews of loan files in the period immediately following consummation to ensure, among other things, compliance with regulatory requirements. During this review phase, a creditor that originated a loan in good faith as a qualified mortgage (or the creditor's assignee) may discover an inadvertent points and fees overage. Indeed, providing a reasonable but limited time period for cure may actually promote strong post-consummation quality control efforts, which may, in turn, improve a creditor's origination procedures and compliance, thereby reducing the use of the cure mechanism over time. Strong post-consummation quality control and improved origination procedures may also reduce costs over time and decrease the incidence of repurchase demands after a loan is sold into the secondary market.

The Bureau believes that the proposed 120-day period would result in reasonably prompt refunds to affected consumers and provide sufficient time to accommodate communication with the consumer. A 120-day period should also allow sufficient time for creditors and secondary market participants to conduct post-consummation reviews that may uncover inadvertent points and fees overages. In contrast, a longer period would not result in prompt refunds and would provide less incentive for rigorous review immediately after consummation. In outreach to industry stakeholders prior to this proposal, the Bureau learned that 120 days is a time period within which post-consummation quality control reviews generally are completed. The Bureau specifically requests comment more broadly, however, on whether 120 days is an appropriate time period for post-consummation cure of a points and fees overage, or whether a longer or shorter period should be provided; what factors would support any recommended time period; and, if the cure were available for a longer period, whether additional conditions should be applied beyond those in this proposal.

The Bureau considered whether the cure provision should run from the date of discovery of the points and fees overage or within a limited number of days after transfer of the loan, rather than the time of consummation, but the Bureau believes that such alternative provisions would be inappropriate. The Bureau is concerned that allowing an extended period of time for cure would create incentives for bad faith actors to intentionally violate the points and fees limit and selectively wait for discovery to cure the violation only when it would be to their advantage to do so. Such actions would not be consistent with the statutory requirement of making a good faith determination of a consumer's ability-to-repay. Similarly, the Bureau is concerned that, particularly later in the life of the loan, giving the creditor a unilateral option to change the status of the loan to a qualified mortgage, thereby providing the creditor with enhanced protection from liability, would facilitate evasion of regulatory requirements by the creditor.

The Bureau also considered whether it would be appropriate to limit a creditor's or assignee's ability to cure points and fees overages for qualified mortgage purposes to the time prior to the receipt of written notice of the error from or the institution of any action by the consumer. The Bureau believes that such a requirement may not be necessary because the points and fees cure must occur within 120 days after consummation such that it is unlikely that the consumer would provide such notice or institute such action during that period. Further, the Bureau believes that such a requirement might undercut the purposes of the cure provision—to encourage both lending up to the points and fees limits and post-consummation quality control review of loans—since creditors and assignees could not be certain of their ability to review the loan post-consummation and provide a refund, if appropriate. However, the Bureau solicits comment on whether cure should be permitted only prior to receipt of written notice of the error from or the institution of any action by the consumer.

The Bureau recognizes that, where points and fees have been financed as part of the loan amount and an overage is refunded to the consumer after consummation, the consumer will continue to pay interest on a loan amount that includes the overage. As a result, the consumer may pay more interest over the life of the loan than would have been paid absent the inadvertent points and fees overage. Although the Bureau believes such circumstances will be limited, the Bureau acknowledges that a post-consummation refund of the amount of points and fees overage alone would not make the consumer whole in most such cases.20 For this reason, the Bureau considered whether the cure provision should require other means of restitution to the consumer, such as restructuring the loan to provide a lower loan amount commensurate with deducting the points and fees overage, or requiring any refund to the consumer to include the present value of excess interest that the consumer would pay over the life of the loan. However, the Bureau believes there are complications to these approaches. For example, the Bureau expects that creditors would have difficulty systematically restructuring loans within a short time after consummation, especially where the loan has already been, or shortly will be, securitized. The Bureau also notes potential difficulties in determining the period over which excess interest should be calculated, since few consumers hold their loans for the entire loan term. In light of these considerations, the Bureau is not proposing that the cure provision require any means of restitution other than a refund of the actual overage amount to the consumer. However, the Bureau solicits comment on other appropriate means of restitution and in what circumstances they may be appropriate.

20 There may be circumstances where the consumer pays discount points to obtain a lower interest rate and the post-consummation review determines the payments do not qualify as bona fide discount points. In such cases, a refund of the discount points, without additional changes to the loan, may result in a net benefit to the consumer.

43(e)(3)(iii)(C)

The third criteria for a cure is set forth in proposed § 1026.43(e)(3)(iii)(C), which would provide that the creditor or assignee must maintain and follow policies and procedures for post-consummation review of loans and for refunding to consumers amounts that exceed the applicable limit under § 1026.43(e)(3)(i). Comment 43(e)(3)(iii)-2 would provide that a creditor or assignee satisfies § 1026.43(e)(3)(iii) if it maintains and follows policies and procedures for post-consummation quality control loan review and for curing (by providing a refund) errors in points and fees calculations that occur at or before consummation.

The Bureau believes this requirement will provide an incentive for creditors to maintain rigorous quality control measures on a consistent and continuing basis. The Bureau believes that conditioning a cure on a consistently applied policy promotes and incentivizes good faith efforts to identify and minimize errors that may occur at or before consummation, with resulting benefits to consumers, as well as creditors and assignees.

The Bureau requests comment on all aspects of the proposal to permit creditors to cure inadvertent excesses over the points and fees limit, including whether a post-consummation cure should be permitted, and whether different, additional, or fewer conditions should be imposed upon its availability, such as whether the consumer must be current on loan payments at the time of the cure.

Legal Authority

The Bureau proposes § 1026.43(e)(3)(iii) pursuant to its authority under TILA section 129C(b)(3)(B)(i) to promulgate regulations that revise, add to, or subtract from the criteria that define a qualified mortgage. For the reasons discussed above, the Bureau believes that the proposed provision is warranted under TILA section 129C(b)(3)(B)(i) because the proposal is necessary and proper to ensure that responsible, affordable mortgage credit remains available to consumers in a manner consistent with purposes of section 129C of TILA, and also necessary and appropriate to facilitate compliance with section 129C of TILA. For example, the Bureau believes the proposed limited post-consummation cure provision will facilitate compliance with TILA section 129C by encouraging strict, post-consummation quality control loan reviews that will, over time, improve the origination process.

In addition, because proposed § 1026.43(e)(3)(iii) permits creditors to cure inadvertent non-compliance with the general qualified mortgage points and fees limitation up to 120 days after consummation, the Bureau also proposes § 1026.43(e)(3)(iii) pursuant to its authority under section 105(a) and (f) of TILA. Pursuant to section 105(a) of TILA, the Bureau generally may prescribe regulations that provide for such adjustments and exceptions for all or any class of transactions that the Bureau judges are necessary or proper to, among other things, effectuate the purposes of TILA. For the reasons discussed above, the Bureau believes that exempting the class of qualified mortgages that involve a post-consummation points and fees cure from the statutory requirement that the creditor make a good faith determination that the consumer has the ability to repay “at the time the loan is consummated” is necessary and proper to effectuate the purposes of TILA. The Bureau believes that limited post-consummation cure of points and fees overages will preserve access to credit to the extent it encourages creditors to extend credit to consumers seeking loans with points and fees up to the 3-percent limit. Without a points and fees cure provision, the Bureau believes that some consumers might be at risk of being denied access to responsible, affordable credit, which is contrary to the purposes of TILA. The Bureau also believes a limited post-consummation cure provision will facilitate compliance with TILA section 129C by encouraging strict, post-consummation quality control loan reviews that will, over time, improve the origination process.

The Bureau has considered the factors in TILA section 105(f) and believes that a limited points and fees cure provision is appropriate under that provision. The Bureau believes that the exemption, with the specific conditions required by the proposal, is appropriate for all affected consumers; specifically, those seeking loans at the margins of the points and fees limit whose access to credit may be affected adversely without the exemption. Similarly, the Bureau believes that the exemption is appropriate for all affected loans covered under the exemption, i.e. those made in good faith as qualified mortgages, regardless of the amount of the loan and whether the loan is secured by the principal residence of the consumer. Furthermore, the Bureau believes that, on balance, the exemption would not undermine the goal of consumer protection or increase the complexity or expense of (or otherwise hinder) the credit process, because costs may actually decrease, as noted above. While the exemption may result in consumers in affected transactions losing some of TILA's benefits, potentially including some aspects of a foreclosure legal defense, the Bureau believes such potential losses are outweighed by the potentially increased access to responsible, affordable credit, an important benefit to consumers. The Bureau believes that is the case for all affected consumers, regardless of their other financial arrangements, their financial sophistication, and the importance of the loan and supporting property to them.

VI. Other Requests for CommentA. Request for Comment on Cure or Correction of Debt-to-Income Overages

To satisfy the general qualified mortgage definition in § 1026.43(e)(2), the consumer's total monthly debt-to-income ratio—verified, documented, and calculated in accordance with § 1026.43(e)(2)(vi)(B) and appendix Q—cannot exceed 43 percent at the time of consummation.21 Similar to an error made in calculating points and fees, errors made in calculating debt-to-income ratios could jeopardize a loan's qualified mortgage status under § 1026.43(e)(2). Some industry stakeholders have suggested that creditors seeking to originate § 1026.43(e)(2) qualified mortgages may establish buffers that relate to debt-to-income ratios—i.e., buffers set at a level below the rule's 43-percent debt-to-income ratio limit. Some creditors may, in turn, refuse to extend mortgage credit to consumers whose loans would exceed the buffer threshold, either due to concerns about potential liability associated with loans originated under the general ability-to-repay standard or the risk of repurchase demands from the secondary market, if the debt-to-income ratio limit is exceeded. Such practices may reduce access to credit to consumers at the margins of the debt-to-income ratio limit.

21 In contrast to the 3-percent cap on points and fees, which applies to all qualified mortgages, the 43-percent debt-to-income ratio limit applies only to the “general” qualified mortgage category (§ 1026.43(e)(2)), and not to the temporary GSE/agency category (§ 1026.43(e)(4)) or the small creditor categories (§ 1026.43(e)(5), (e)(6), and (f)).

As explained above, the Bureau is proposing § 1026.43(e)(3)(iii) to permit cure of inadvertent points and fees overages by refunding to the consumer the dollar amount that exceeds the applicable points and fees limit, under certain defined conditions. The Bureau is also considering whether a similar cure provision may be appropriate in the context of debt-to-income overages. As discussed above, the proposed points and fees cure procedure may benefit consumers and the market in various ways. A debt-to-income cure provision has the potential to benefit consumers and the market in a similar manner. However, as discussed below, the Bureau believes that miscalculations of debt-to-income ratios are fundamentally different in nature than errors in calculating points and fees, and may be less suitable to a cure provision similar to proposed § 1026.43(e)(3)(iii).

The Bureau is also considering whether it may be appropriate to address the more limited scenario where debt-to-income overages result from errors in calculation or documentation, or both, of debt or income. Specifically, the Bureau is considering whether, in such situations, it would be feasible to permit post-consummation corrections to the documentation, which would result in a corresponding recalculation of the debt-to income ratio. While such a correction mechanism has the potential to benefit consumers and the market, there are a number of reasons, discussed below, why it may be inappropriate and impracticable.

In light of these difficulties and concerns, the Bureau is not proposing a specific debt-to-income ratio cure or correction provision at this time. However, to aid its ongoing consideration of these options, the Bureau is requesting comment on any and all aspects of potential cure and correction provisions for debt-to-income overages described below.

Debt-to-Income Cure

As noted, the Bureau recognizes that a debt-to-income cure mechanism has the potential to benefit consumers and the market. However, the Bureau is concerned that such a procedure may be inappropriate because a miscalculation of debt-to-income ratios cannot be remedied in a manner similar to, or as equally practicable as, remedying a miscalculation of points and fees. The Bureau believes that debt-to-income overages commonly would result from creditors incorrectly, but inadvertently, including income or failing to consider debts in accordance with the rule—i.e., understating the numerator or overstating the denominator in the mathematical equation that derives the debt-to-income ratio. In these situations, a creditor or secondary market purchaser would need to alter the consumer's debts and/or income to bring the debt-to-income ratio within the 43-percent limit or the ratio would exceed qualified mortgage limits.

It is unclear how creditors could raise consumers' incomes or lower their debts systematically to bring the ratio within the 43-percent limit. Of course, creditors cannot increase a consumer's income. It may be possible in some situations for creditors to modify the underlying mortgage and lower the consumer's monthly payment on the loan so that the “debt” is low enough to bring the ratio back within the 43-percent limit—or to pay down other debts of the consumer to achieve the same result. However, the Bureau believes this approach would require a complex restructuring of the loan, which may itself trigger a repurchase demand from the secondary market, and possibly require a refund of excess payments collected from the time of consummation.

For any such cure provision to be considered, creditors would need to maintain and follow policies and procedures of post-consummation review of loans to restructure them and refund amounts as necessary to bring the debt-to-income ratio within the 43-percent limit. However, based on the Bureau's current information, the Bureau does not believe creditors could realistically meet such a requirement, and expects that creditors would have difficulty systematically restructuring loans, or systematically paying down debts on the consumer's behalf, within a short time after consummation. Moreover, in some cases the consumer's other debts (when properly considered) could be too substantial, or the corrected income too low, for any viable modification of the mortgage to reduce the debt-to-income ratio below the prescribed limit.

Debt-to-Income Correction

The Bureau is also considering whether it may be appropriate to address the more limited scenario where debt-to-income overages result solely from errors in documentation of debt or income. For example, a creditor may have considered but failed to properly document certain income in accordance with the rule. Such an error may feasibly be remedied by submission of corrected documentation (and a corresponding recalculation of the debt-to-income ratio) without the need for a monetary cure or loan restructuring. A correction also could be effective in situations in which the creditor erred in calculating the consumer's debts and as a result verified and documented only certain income if that income alone appeared sufficient to satisfy the 43-percent limit.

Certain sources of income (e.g., salary) are generally considered easier to document than others (e.g., rental or self-employment income), and satisfaction of the general qualified mortgage definition does not require creditors to document and consider every potential source of income, so long as the debt-to-income ratio based on the income considered (and calculated in accordance with the rule) does not exceed 43 percent. Creditors may, for the sake of expediency, only consider easy-to-document income when that income alone satisfies the debt-to-income ratio—a practice permitted under the regulation.22 Where a creditor or secondary market purchaser later discovers that income relied upon was overstated or additional debts existed that were not considered, it may be feasible for a creditor to correct a resulting debt-to-income ratio overage by collecting documentation and considering the additional income it knew about at the time of consummation but chose not to consider for the sake of expediency.

22See comment 43(c)(2)(i)-5; see also Appendix Q (noting that a creditor may always “exclude the income or include the debt” when unsure if the debt or the income should be considered).

While these means of correcting debt-to-income ratio overages may be feasible, the Bureau is concerned that a provision tailored toward these situations may be inappropriate and believes any such provision could result in unintended consequences. The Bureau is concerned about the risk of creating any disincentives for creditors to exercise due diligence in carrying out their statutory obligations. In addition, the Bureau is concerned that allowing creditors to supplement required documentation after consummation could raise factual questions of what income and documentation the creditor was aware of at the time of consummation, and what income and documentation were discovered only after an intensive investigation following discovery of a debt-to-income overage. The Bureau is also concerned that, in some instances a correction provision could allow loans to be deemed qualified mortgages based on post hoc documentation, notwithstanding that the creditor, in fact, would not have made the loan had it correctly calculated the consumer's debt-to-income ratio.

Although the Bureau has received requests from industry noting that it would be useful to permit corrections in situations where a creditor did not document all known income at the time of consummation, it is not clear how often this will happen in practice. Furthermore, the Bureau believes that amending the rule to allow for correction in those instances may be unnecessary because creditors could avoid such debt-to-income ratio overages by verifying additional sources of income prior to consummation, at least in loans where the debt-to-income ratio would otherwise be near the 43-percent limit.

As discussed above with respect to points and fees, the Bureau expects that, over time, creditors will develop greater familiarity with, and capabilities for, originating loans that are not qualified mortgages under the ability-to-repay requirements, as well as greater confidence in general compliance systems. As they do so, the Bureau believes creditors may relax internal debt-to-income ratio buffers that are predicated on the qualified mortgage threshold. Although the Bureau is considering whether the impacts on access to credit during the interim period (when such capabilities are being developed) may make a debt-to-income cure provision appropriate, the 43-percent debt-to-income ratio limit applies only to one category of qualified mortgages, unlike the points and fees limit, which applies to all qualified mortgages. Small creditors making qualified mortgages under § 1026.43(e)(5), (e)(6), and (f) are not subject to the 43-percent debt-to-income limit. Further, creditors of any size currently have the option of originating GSE/agency-eligible loans under the temporary qualified mortgage definition without regard to the 43-percent debt-to-income limit.23 For this reason, the Bureau believes that a relatively small number of loans are currently affected by the debt-to-income limit.

23 Pursuant to § 1026.43(e)(4)(ii) and (iii), the temporary GSE/agency qualified mortgage definition will sunset on the earlier of January 10, 2021 or, with respect to GSE-eligible loans, when the GSEs (or any limited-life regulatory entity succeeding the charters of the GSEs) exit government conservatorship, or, with respect to agency-eligible loans, when those agencies' qualified mortgage definitions take effect.

For these reasons, the Bureau is not proposing a specific cure or correction provision related to the 43-percent debt-to-income limit for qualified mortgages under § 1026.43(e)(2) at this time. However, to aid its ongoing consideration of such provisions, the Bureau requests comment on all aspects of the debt-to-income cure or correction approaches discussed above and, in particular, requests commenters to provide specific and practical examples of where such approaches may be applied and how they may be implemented. The Bureau also requests comment on what conditions should appropriately apply to cure or correction of the qualified mortgage debt-to-income limits, including the time periods (such as the 120-day period included in the proposed points and fees cure provision) when such provisions may be available. The Bureau also requests comment on whether or how a debt-to-income cure or correction provision might be exploited by unscrupulous creditors to undermine consumer protections and undercut incentives for strict compliance efforts by creditors or assignees.

B. Request for Comment on the Credit Extension Limit for the Small Creditor Definition

Under the Bureau's 2013 Title XIV Final Rules, there are four types of exceptions and special provisions available only to small creditors:

• A qualified mortgage definition for certain loans made and held in portfolio, which are not subject to a bright-line debt-to-income ratio limit and are subject to a higher annual percentage rate (APR) threshold for defining which first-lien qualified mortgages receive a safe harbor under the ability-to-repay rule (§ 1026.43(e)(5)); 24

24 For purposes of determining whether a loan has a safe harbor with TILA's ability-to-repay requirements (or instead is categorized as “higher-priced” with only a rebuttable presumption of compliance with those requirements), for first-lien covered transactions, the special qualified mortgage definitions in § 1026.43(e)(5), (e)(6) and (f) receive an APR threshold of the average prime offer rate plus 3.5 percentage points, rather than plus 1.5 percentage points.

• Two qualified mortgage definitions (i.e., a temporary and an ongoing definition) for certain loans made and held in portfolio that have balloon-payment features, which are also subject to the higher APR threshold for defining which first-lien qualified mortgages receive a safe harbor under the ability-to-repay rule (§ 1026.43(e)(6) and (f));

• An exception from the requirement to establish escrow accounts for certain higher-priced mortgage loans (HPMLs) for small creditors that operate predominantly in rural or underserved areas (§ 1026.35(b)(2)(iii)); 25 and

25 To meet the “rural” or “underserved” requirement, during any of the preceding three calendar years, the creditor must have extended more than 50 percent of its total covered transactions, as defined by § 1026.43(b)(1) and secured by a first lien, on properties that are located in counties that are either “rural” or “underserved,” as defined by § 1026.35(b)(2)(iv). See § 1026.35(b)(2)(iii)(A).

• An exception from the prohibition on balloon-payment features for certain high-cost mortgages (§ 1026.32(d)(1)(ii)(C)).26

26 For loans made on or before January 10, 2016, small creditors may originate high-cost mortgages with balloon-payment features even if the creditor does not operate predominantly in rural or underserved areas, under certain conditions. See §§ 1026.32(d)(1)(ii)(C) and 1026.43(e)(6).

These special rules and exceptions recognize that small creditors are an important source of non-conforming mortgage credit. Small creditors' size and relationship lending model often provide them with better ability than large institutions to assess ability-to-repay. At the same time, small creditors lack economies of scale necessary to offset the cost of certain regulatory burdens. To be a small creditor for purposes of these exceptions and special provisions, the creditor must have (1) together with its affiliates, originated 500 or fewer covered transactions 27 secured by a first lien in the preceding calendar year; and (2) had total assets of less than $2 billion at the end of the preceding calendar year. As discussed in more detail below, the Bureau is requesting comment on certain aspects of the annual first-lien origination limit under the small creditor test.

27 “Covered transaction” is defined in § 1026.43(b)(1) to mean a consumer credit transaction that is secured by a dwelling, as defined in § 1026.2(a)(19), including any real property attached to a dwelling, other than a transaction exempt from coverage under § 1026.43(a).

These special rules for small creditors are largely based on TILA sections 129D(c) and 129C(b)(2)(E), respectively. TILA section 129D(c) authorizes the Bureau to exempt a creditor from the higher-priced mortgage loan escrow requirement if the creditor operates predominantly in rural or underserved areas, retains its mortgage loans in portfolio, and meets certain asset size and annual mortgage loan origination thresholds set by the Bureau. TILA section 129C(b)(2)(E) permits certain balloon-payment mortgages originated by small creditors to receive qualified mortgage status, even though qualified mortgages are otherwise prohibited from having balloon-payment features. The creditor qualifications under TILA section 129C(b)(2)(E) generally mirror the criteria for the higher-priced mortgage loan escrow exemption, including meeting certain asset size and annual mortgage loan origination thresholds set by the Bureau.

The Board proposed to implement TILA sections 129D(c) and 129C(b)(2)(E) before TILA rulemaking authority transferred to the Bureau. Although the creditor qualification criteria under these provisions are similar, the Board proposed to implement the provisions in slightly different ways.

To implement TILA section 129D(c), the exemption from the higher-priced mortgage loan escrow requirements, the Board proposed to limit the exemption to creditors that (1) during either of the preceding two calendar years, together with affiliates, originated and retained servicing rights to 100 or fewer loans secured by a first lien on real property or a dwelling; and (2) together with affiliates, do not maintain escrow accounts for loans secured by real property or a dwelling that the creditor or its affiliates currently service.28 The Board interpreted the escrow provision as intending to exempt creditors that do not possess economies of scale to escrow cost-effectively. In proposing the transaction count limit, the Board estimated that a minimum servicing portfolio size of 500 is necessary to escrow cost-effectively, and assumed that the average life expectancy of a mortgage loan is about five years. Based on this reasoning, the Board believed that creditors would no longer need the benefit of the exemption if they originated and serviced more than 100 first-lien transactions per year. The Board proposed a two-year coverage test to afford an institution sufficient time after first exceeding the threshold to acquire an escrowing capacity. The Board did not propose an asset-size threshold to qualify for the escrow exemption, but sought comment on whether such a threshold should be established and, if so, what it should be.

28 76 FR 11597 (Mar. 2, 2011) (2011 Escrows Proposal). The proposed exemption also would have required that, during the preceding calendar year, the creditor extended more than 50 percent of its total first-lien higher-priced mortgage loans in counties designated as rural or underserved, among other requirements.

For the balloon-payment qualified mortgage definition to implement TILA section 129C(b)(2)(E), the Board proposed an asset-size limit of $2 billion and two alternative annual originations thresholds. The Board interpreted the qualified mortgage provision as being designed to ensure access to credit in areas where consumers may be able to obtain credit only from community banks offering balloon-payment mortgages. Accordingly, the Board proposed two alternatives for the total annual originations portion of the test: Under alternative 1, the creditor, together with all affiliates, extended covered transactions of some dollar amount or less during the preceding calendar year, whereas under alternative 2, the creditor, together with all affiliates, extended some number of covered transactions or fewer during the preceding calendar year. The Board did not propose a specific annual originations threshold in connection with TILA section 129C(b)(2)(E), but the Board sought comment on the issue.

Rulemaking authority for TILA passed to the Bureau in July 2011, before the Board finalized the above-described proposals. The Bureau considered the Board's proposals and responsive public comments before finalizing those rules in January 2013. The Bureau also conducted further analysis to try to determine the appropriate thresholds, although such effort was significantly constrained by data limitations. The Bureau ultimately adopted an annual originations limit of 500 or fewer first-lien covered transactions in the preceding calendar year and an asset-size limit of less than $2 billion, adjusted annually for inflation.29 The Bureau believed that it would be preferable to use the same annual originations and asset-size thresholds for the qualified mortgage and escrow provisions to reflect the consistent statutory language, to facilitate compliance by not requiring institutions to track multiple metrics, and to promote consistent application of the two exemptions. The Bureau also applied these limits to the exception from the balloon-payment prohibition for high-cost loans, to the qualified mortgage definition for small portfolio creditors, and to the qualified mortgage definition for loans with balloon-payment features.

29 The higher-priced mortgage loan escrows exemption also requires that the creditor operate predominantly in rural or underserved areas. See § 1026.35(b)(2)(iii)(A). For loans made on or before January 10, 2016, small creditors may originate qualified mortgages, and high-cost mortgages, with balloon-payment features even if the creditor does not operate predominantly in rural or underserved areas, under certain conditions. See §§ 1026.32(d)(1)(ii)(C) and 1026.43(e)(6).

The Bureau adopted a threshold of 500 or fewer annual originations of first-lien transactions to provide flexibility and reduce concerns that the threshold in the Board's 2011 Escrows Proposal would reduce access to credit by excluding creditors that need special accommodations in light of their capacity constraints.30 The Bureau believed that an originations limit is the most accurate means of limiting the special provisions to the class of small creditors with a business model the Bureau believes will best facilitate access to responsible, affordable credit. The Bureau also believed that an asset limit is important to preclude a very large creditor with relatively modest mortgage operations from taking advantage of a provision designed for much smaller creditors with much different characteristics and incentives, and that lack the scale to make compliance less burdensome.

30 The preamble to the January 2013 Escrows Final Rule noted that the increased threshold was likely not very dramatic because the Bureau's analysis of HMDA data suggested that even small creditors are likely to sell a significant number of their originations in the secondary market and, assuming that most mortgage transactions that are retained in portfolio are also serviced in-house, the Bureau estimated that a creditor originating no more than 500 first-lien transactions per year would maintain and service a portfolio of about 670 mortgage obligations over time (assuming an average obligation life expectancy of five years). Thus, the Bureau believed the higher threshold in the January 2013 Escrows Final Rule would help to ensure that creditors that are subject to the escrow requirement would in fact maintain portfolios of sufficient size to maintain the escrow accounts on a cost-efficient basis over time, in the event that the Board's 500-loan estimate of a minimum cost-effective servicing portfolio size was too low. At the same time, however, the Bureau believed that the 500 annual originations threshold in combination with the other requirements would still ensure that the balloon-payment qualified mortgage and escrow exemptions are available only to small creditors that focus primarily on a relationship lending model and face significant systems constraints.

Based on estimates from publicly available Home Mortgage Disclosure Act (HMDA) and call report data, the Bureau understood that the small creditor provisions as finalized would include approximately 95 percent of creditors with less than $500 million in assets, approximately 74 percent of creditors with assets between $500 million and $1 billion, and approximately 50 percent of creditors with assets between $1 billion and $2 billion. The Bureau believed these percentages were consistent with the rationale for providing special accommodation for small creditors and would be appropriate to ensure that consumers have access to responsible, affordable mortgage credit.

Consistent with the Bureau's ongoing Implementation Plan, the Bureau is seeking comment on the 500 total first-lien originations limit—and the requirement that the limit be determined for any given calendar year based upon results during the immediately prior calendar year. Specifically, the Bureau solicits feedback and data from (1) creditors designated as small creditors under the Bureau's 2013 Title XIV Final Rules; and (2) creditors with assets that are not at or above the $2 billion limitation but that do not qualify for small creditor treatment under the Bureau's 2013 Title XIV Final Rules because of their total annual first-lien mortgage originations. For such creditors, the Bureau requests data on the number and type of mortgage products offered and originated to be held in portfolio during the years prior to the effective date of the 2013 Title XIV Final Rules and subsequent to that date. In particular, the Bureau is interested in how such creditors' origination mix changed in light of the Bureau's 2013 Title XIV Final Rules (including, but not limited to, the percentage of loans that are fixed-rate, are adjustable-rate, or have a balloon-payment feature) and, similarly, how such creditors' origination mix changed when only considering loans originated for the purposes of keeping them in portfolio. The Bureau also solicits feedback on such small creditors' implementation efforts with respect to the Bureau's 2013 Title XIV Final Rules. The Bureau is interested in detailed descriptions of the challenges that creditors might face when transitioning from originating balloon-payment loans to originating adjustable-rate loans. Finally, the Bureau solicits comment on whether the 500 total first-lien originations limit is sufficient to serve the above-described purposes of the provision and, to the extent it may be insufficient, the reasons why it is insufficient and the range of appropriate limits.

As noted above, certain of the special provisions applicable to small creditors are limited to small creditors in “rural” or “underserved” areas. The Bureau finalized a definition of “rural” or “underserved” in the 2013 Escrows Final Rule. 78 FR 4725 (Jan. 22, 2013). The Bureau recognizes that concerns have been raised by some stakeholders that the Bureau's definition is under-inclusive and fails to cover certain counties or portions of counties that are typically thought of as rural or underserved in nature. The Bureau is considering whether to propose modifications to the definition of “rural” or “underserved” at a later date and is not requesting comment at this time on this issue.

VII. Dodd-Frank Act Section 1022(b)(2) AnalysisA. Overview

In developing the proposed rule, the Bureau has considered potential benefits, costs, and impacts.31 The Bureau requests comment on the preliminary analysis presented below as well as submissions of additional data that could inform the Bureau's analysis of the benefits, costs, and impacts. The Bureau has consulted, or offered to consult with, the prudential regulators, the Securities and Exchange Commission, the Department of Housing and Urban Development, the Federal Housing Finance Agency, the Federal Trade Commission, the U.S. Department of Veterans Affairs, the U.S. Department of Agriculture, and the Department of the Treasury, including regarding consistency with any prudential, market, or systemic objectives administered by such agencies.

31 Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act calls for the Bureau to consider the potential benefits and costs of a regulation to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services; the impact on depository institutions and credit unions with $10 billion or less in total assets as described in section 1026 of the Dodd-Frank Act; and the impact on consumers in rural areas.

There are three main provisions in this rulemaking proposal. The first provision extends the small servicer exemption from certain provisions of the 2013 Mortgage Servicing Final Rules to nonprofit servicers that service 5,000 or fewer loans on behalf of themselves and associated nonprofits, all of which were originated by the nonprofit or an associated nonprofit. The second provision excludes certain non-interest bearing, contingent subordinate liens that meet the requirements of proposed § 1026.43(a)(3)(v)(D) (“contingent subordinate liens”) from the 200-loan limit calculation for purposes of qualifying for the nonprofit exemption from the ability-to-repay requirements. The third provision affords creditors an option, in limited circumstances, to cure certain mistakes in cases where a creditor originated a loan with an expectation of qualified mortgage status, but the loan actually exceeded the points and fees limit for qualified mortgages at consummation (“points and fees cure”).

The Bureau has chosen to evaluate the benefits, costs, and impacts of these proposed provisions against the current state of the world. That is, the Bureau's analysis below considers the benefits, costs, and impacts of the three proposed provisions relative to the current regulatory regime, as set forth primarily in the January 2013 ATR Final Rule, the May 2013 ATR Final Rule, and the 2013 Mortgage Servicing Final Rules.32 The baseline considers economic attributes of the relevant market and the existing regulatory structure.

32 The Bureau has discretion in future rulemakings to choose the relevant provisions to discuss and to choose the most appropriate baseline for that particular rulemaking.

The main benefit of each of these proposed provisions to consumers is a potential increase in access to credit and a potential decrease in the cost of credit. It is possible that, but for these provisions, (1) financial institutions would stop or curtail originating or servicing in particular market segments or would increase the cost of credit or servicing in those market segments in numbers sufficient to adversely impact those market segments, (2) the financial institutions that would remain in those market segments would not provide a sufficient quantum of mortgage loan origination or servicing at the non-increased price, and (3) there would not be significant new entry into the market segments left by the departing institutions. If, but for these proposed provisions, all three of these scenarios would be realized, then the three proposed provisions will increase access to credit. The Bureau does not possess any data, aside from anecdotal comments, to refute or confirm any of these scenarios for any of the proposed exemptions. However, the Bureau notes that, at least in some market segments, these three scenarios could be realized by just one creditor or servicer stopping or curtailing originating or servicing or increasing the cost of credit. This would occur, for example, if that creditor or servicer is the only one willing to extend credit or provide servicing to this market segment (for example, to low- and moderate-income consumers), no other creditor or servicer would enter the market even if the incumbent exits, and the incumbent faces higher costs that would lead it to either increase the cost of credit or curtail access to credit.

The main cost to consumers of the proposed small nonprofit servicer and small nonprofit originator provisions is that, for some transactions, creditors or servicers will not have to provide consumers some of the protections provided by the ability-to-repay and mortgage servicing rules. The main cost of the points and fees cure provision to consumers is that a creditor could reimburse a consumer for a points and fees overage after consummation—with the creditor thereby obtaining the safe harbor or rebuttable presumption of TILA ability-to-repay compliance afforded by a qualified mortgage, and the consumer having less ability to challenge the mortgage on ability-to-repay grounds. As noted above, the Bureau does not possess data to provide a precise estimate of the number of transactions affected. However, the Bureau believes that the number will be relatively small.

The main benefit of each of these proposed provisions to covered persons is that the affected covered persons do not have to incur certain expenses associated with the ability-to-repay and mortgage servicing rules, or will not be forced either to exit the market or to curtail origination or servicing activities to maintain certain regulatory exemptions. Given the currently available data, it is impossible for the Bureau to estimate the number of transactions affected with any useful degree of precision; that is also the case for estimating the amount of monetary benefits for such covered persons.

There is no major cost of these proposed provisions to covered persons—each of the provisions is an option that a financial institution is free to undertake or not to undertake. The only potential costs for covered persons is that other financial institutions that would have complied with the ability-to-repay and mortgage servicing rules with or without the proposed provisions may lose profits to the institutions that are able to continue operating in a market segment by virtue of one of the proposed provisions. However, these losses are likely to be small and are difficult to estimate.

The Bureau's 2013 Mortgage Servicing Final Rules were designed to address the market failure of consumers not choosing their servicers and of servicers not having sufficient incentives to invest in quality control and consumer satisfaction. The demand for larger loan servicers' services comes from originators, not from consumers. Smaller servicers, however, have an additional incentive to provide “high-touch” servicing that focuses on ensuring consumer satisfaction. 78 FR 10695, 10845-46 (Feb. 14, 2013); 78 FR 10901, 10980-82 (Feb. 14, 2013).

The Bureau's 2013 Mortgage Servicing Final Rules provide many benefits to consumers: for example, detailed periodic statements. These benefits tend to present potential costs to servicers: for example, changing their software systems to include additional information on the periodic statements to consumers. These benefits and costs are further described in the “Dodd-Frank Act Section 1022(b)(2) Analysis” sections of the 2013 Mortgage Servicing Final Rules. 78 FR 10695, 10842-61 (Feb. 14, 2013); 78 FR 10901, 10978-94 (published concurrently).

Smaller servicers are generally community banks and credit unions that have a built-in incentive to manage their reputation with consumers carefully because they are servicing loans in communities in which they also originate loans. This incentive is reinforced if they are servicing only loans that they originate. Under current § 1026.41(e)(4)(ii), a small servicer is a servicer that either (A) services, together with any affiliates, 5,000 or fewer mortgage loans for all of which the servicer (or an affiliate) is the creditor or assignee; or (B) is a Housing Finance Agency, as defined in 24 CFR 266.5. The definition of the term “affiliate” is the definition provided in the Bank Holding Company Act (BHCA). The rationale for the small servicer exemption is provided in the Bureau's 2013 Mortgage Servicing Final Rules. 78 FR 10695, 10845-46 (Feb. 14, 2013); 78 FR 10901, 10980-82 (published concurrently).

The proposed revision of the exemption allows a nonprofit servicer to service loans on behalf of “associated nonprofit entities” that do not meet the BHCA “affiliate” definition and still qualify as a “small servicer,” as long as certain other conditions are met (for example, it has no more than 5,000 loans in its servicing portfolio). The Bureau believes nonprofit servicers typically follow the same “high-touch” servicing model followed by the small servicers described in the Dodd-Frank Act Section 1022(b)(2) Analysis in the 2013 Mortgage Servicing Final Rules. While these nonprofit servicers are not motivated by the profit incentive that motivates community banks and small credit unions, they nonetheless have a reputation incentive and a mission incentive to provide “high-touch” servicing, neither of which is diminished when they service associated nonprofits' loans. Because it is limited to entities sharing a common name, trademark, or servicemark, proposed § 1026.41(e)(4)(ii)(C) further ensures that the reputation incentive remains intact. In addition, the 5,000-loan servicing portfolio limit ensures that nonprofit servicers are still sufficiently small to provide “high-touch” servicing. Another rationale for the proposed revision of the exemption is that it would create a more level playing field for nonprofits. Currently, for-profit affiliates can take advantage of economies of scale to service their loans together, but related nonprofits cannot because they typically are not “affiliates” as defined by the BHCA.

Overall, the primary benefit to consumers of the proposed amendment to the small servicer definition is a potential increase in access to credit and a potential decrease in the cost of credit. The primary cost to consumers is losing some of the protections of the Bureau's 2013 Mortgage Servicing Final Rules. The primary benefit to covered persons is exemption from certain provisions of those rules, and the attendant cost savings of not having to comply with those provisions while still being able to achieve a certain degree of scale by taking on servicing for associated nonprofits. See also 78 FR 10695, 10842-61 (Feb. 14, 2013); 78 FR 10901, 10978-94 (published concurrently). There are no significant costs to covered persons.

Finally, the Bureau does not possess any data that would enable it to report the number of transactions affected, but from anecdotal evidence and taking into account the size of the nonprofit servicers that are the most likely to take advantage of this exemption, it is unlikely that there will be a significant number of loans affected each year. Several nonprofit servicers might be affected as well.

Ability-to-Repay Exemption for Contingent Subordinate Liens

The Bureau's ability-to-repay rule was designed to address the market failure of mortgage loan originators not internalizing the effects of consumers not being able to repay their loans: effects both on the consumers themselves and on the consumers' neighbors, whose houses drop in value due to foreclosures nearby.

The May 2013 ATR Final Rule added a nonprofit exemption from the ability-to-repay requirements. The rationale of that exemption is preserving low- and moderate-income consumers' access to credit available from nonprofit organizations, which might have stopped or curtailed originating loans but for this exemption. The main benefit of the exemption for consumers is in potential expansion of access to credit and a potential decrease in the cost of credit; the main cost for consumers is not receiving protections provided by the ability-to-pay rule. The May 2013 ATR Final Rule exempted only nonprofit creditors that originated 200 or fewer loans a year, based on the Bureau's belief that these institutions do internalize the effects of consumers not being able to repay their loans and that the loan limitation is necessary to prevent the exemption from being exploited by unscrupulous creditors seeking to harm consumers.

Proposed § 1026.43(a)(3)(vii) excludes contingent subordinate liens from the 200-credit extension limit for purposes of the May 2013 ATR Final Rule's nonprofit exemption. Given the numerous limitations on contingent subordinate liens, including but not limited to the 1-percent cap on upfront costs payable by the consumer—and given the 200-loan limit for other loans, the Bureau believes that the potential for creditors to improperly exploit the amended rule is low. The Bureau also believes that this exemption will allow a greater number of nonprofit creditors to originate more loans than under the current rule, or to remain in the low- and moderate-income consumer market without passing through cost increases to consumers.

Overall, the primary benefit to consumers of the proposed exclusion is a potential increase in access to credit and a potential decrease in the cost of credit. The primary cost to consumers is losing some of the protections provided by the Bureau's ability-to-repay rule. The primary benefit to covered persons is exemption from that same rule. See 78 FR 6407, 6555-75 (Jan. 30, 2013); (“Dodd-Frank Act Section 1022(b)(2) Analysis” part in the January 2013 ATR Final Rule); 78 FR 35429, 35492-97 (June 12, 2013) (similar part in the May 2013 ATR Final Rule). There are no significant costs to covered persons.

Finally, the Bureau does not possess any data that would enable it to report the number of transactions affected, but from anecdotal evidence and taking into account the size of the nonprofit creditors that are most likely to take advantage of this exemption, it is unlikely that there will be a significant number of loans affected each year, and it is possible that virtually no loans will be affected in the near future. Several nonprofit creditors might be affected as well, but it is possible that no nonprofit creditors will be affected in the near future.

Cure for Points and Fees Over the Qualified Mortgage Threshold

To originate a qualified mortgage, a creditor must satisfy various conditions, including the condition of charging at most 3 percent of the total loan amount in points and fees, not including up to two bona-fide discount points, and with higher thresholds for lower loan amounts. However, origination processes are not perfect and creditors might be concerned about any potential unintended errors that result in a loan that the creditor believed to be a qualified mortgage at origination but that actually was over the 3-percent points and fees threshold upon further, post-consummation review.

The three most likely responses by a creditor concerned about such inadvertent errors would be either to originate loans with points and fees well below TILA's 3-percent limit, to insert additional quality control in its origination process, or to charge a premium for the risk of a loan being deemed not to be a qualified mortgage, especially on loans with points and fees not well below TILA's 3-percent limit. The first solution is not what the Bureau, or presumably Congress, intended; otherwise the statutory limit would have been set lower than 3 percent. The second solution could result in more than the socially optimal amount of effort expended on quality control, especially since most loans will be securitized and thus re-examined shortly after origination. The savings from forgoing additional quality control might be passed through to consumers, to the extent that costs saved are marginal (as opposed to fixed) and the markets are sufficiently competitive. The third solution is, effectively, a less stark version of the first solution, with loans close to TILA's 3-percent limit still being originated, albeit at higher prices simply due to being close to the limit. Like the first potential solution, this would be an unintended consequence of the limit.

The primary potential drawback of the proposal to allow creditors to cure inadvertent points and fees errors is the risk of inappropriate exploitation by creditors. However, the conditions the Bureau has placed on the proposed cure mechanism help to ensure that creditors will not abuse this mechanism and thus that consumers are unlikely to experience negative side-effects.

One such potential gaming scenario involves a creditor originating risky loans with high points and fees while hoping to avoid a massive wave of foreclosures. In this case, the possibility of cure could be thought of as an option that the creditor could exercise to strengthen its position for foreclosure litigation, but only if the creditor foresees the wave of foreclosures. The elements of proposed § 1026.43(e)(3)(iii) requiring that the loan be originated in good faith as a qualified mortgage and that the overage be cured within 120 days after consummation should discourage this type of gaming. Another gaming scenario is a creditor that only cures overages on loans that go into foreclosure. This possibility is limited by the proposed 120-day cure window, as well as by the proposed requirement that the creditor or assignee, as applicable, maintains and follows policies and procedures for post-consummation review and refunding overages.

The primary benefit to consumers of the proposed cure provision is a potential increase in access to credit and a potential decrease of the cost of credit. Another potential benefit is that, when a creditor discovers the inadvertent points and fees overage, the creditor may reimburse the consumer for the overage. However, this is a benefit only for consumers who place greater value on being reimbursed than on the additional legal protections that a non-qualified mortgage would afford them. The primary cost to consumers is that, without the consumer's consent, a creditor could reimburse the consumer for a points and fees overage after consummation—with the creditor thereby obtaining the safe harbor (or rebuttable presumption) of TILA ability-to-repay compliance. However, the Bureau believes that the safeguards included in the proposed rule will mitigate this potential concern as creditors are unlikely to be able to game the system and thereby deprive consumers of the protections provided by the ability-to-pay rule.

The primary benefit to covered persons is being able to originate qualified mortgages without engaging in inefficient additional quality control processes, with the attendant reduction in legal risk. Some larger creditors might have sufficiently robust compliance procedures that largely prevent inadvertent points and fees overages. These creditors might lose some market share to creditors for whom this provision will be more useful. The Bureau cannot meaningfully estimate the magnitude of this effect.

Finally, the Bureau does not possess any data that would enable it to report the number of transactions affected. For some creditors, the proposed provision might save additional verification and quality control in the loan origination process for every qualified mortgage transaction that they originate 33 and/or allow them to originate loans with points and fees close to the 3-percent threshold at lower prices that do not reflect the risk of the loan inadvertently turning out not to be a qualified mortgage. The Bureau seeks comment on this issue and, in particular, any detailed descriptions regarding the processes that might be simplified due to the proposed cure provision and monetary and time savings involved.

33 While a result of the proposed points and fees cure is that creditors have less of an incentive to perform rigorous quality control before consummation, there is also an alleviating effect. Any errors uncovered in the post-consummation review might help creditors improve their pre-consummation review by immediately pointing out areas to focus on.

C. Impact on Covered Persons With No More Than $10 Billion in Assets

Covered persons with no more than $10 billion in assets likely will be the only covered persons affected by the two proposed exemptions regarding associated nonprofits and contingent subordinate liens: The respective loan limits of each provision virtually ensure that any creditor or servicer with over $10 billion in assets would not qualify for these two exemptions. For the third proposed provision, regarding points and fees, smaller creditors might benefit more than larger creditors. Larger creditors are more likely to have sufficiently robust compliance procedures that largely prevent inadvertent points and fees overages. Thus, this proposed provision might not benefit them as much. The third proposed provision may lead smaller creditors to extend a greater number of qualified mortgages near the 3-percent points and fees limit, to extend them for a lower price, and/or to forgo inefficient pre-consummation quality control. To the extent that possibility is realized, smaller creditors would benefit from the liability protection afforded by qualified mortgages.

D. Impact on Access to Credit

The Bureau does not believe that there will be an adverse impact on access to credit resulting from any of the three provisions. Moreover, it is possible that there will be an expansion of access to credit.

E. Impact on Rural Areas

The Bureau believes that rural areas might benefit from these three provisions more than urban areas, to the extent that there are fewer active creditors or servicers operating in rural areas than in urban areas. Thus, any creditors or servicers exiting the market or curtailing lending or servicing in rural areas—or restricting originating loans with points and fees close to the TILA 3-percent limit—might negatively affect access to credit more than similar behavior by creditors or servicers operating in more urban areas. A similar argument applies to any increases in the cost of credit.

VIII. Regulatory Flexibility Act Analysis

The Regulatory Flexibility Act (the RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996, requires each agency to consider the potential impact of its regulations on small entities, including small businesses, small governmental units, and small nonprofit organizations. The RFA defines a “small business” as a business that meets the size standard developed by the Small Business Administration pursuant to the Small Business Act.

The RFA generally requires an agency to conduct an initial regulatory flexibility analysis (IRFA) and a final regulatory flexibility analysis (FRFA) of any rule subject to notice-and-comment rulemaking requirements, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. The Bureau also is subject to certain additional procedures under the RFA involving the convening of a panel to consult with small business representatives prior to proposing a rule for which an IRFA is required.

An IRFA is not required for this proposal because the proposal, if adopted, would not have a significant economic impact on any small entities. The Bureau does not expect the proposal to impose costs on covered persons. All methods of compliance under current law will remain available to small entities if the proposal is adopted. Thus, a small entity that is in compliance with current law need not take any additional action if the proposal is adopted. Accordingly, the undersigned certifies that this proposal, if adopted, would not have a significant economic impact on a substantial number of small entities.

IX. Paperwork Reduction Act

Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq.), Federal agencies are generally required to seek the Office of Management and Budget (OMB) approval for information collection requirements prior to implementation. The collections of information related to Regulations Z and X have been previously reviewed and approved by OMB in accordance with the PRA and assigned OMB Control Number 3170-0015 (Regulation Z) and 3170-0016 (Regulation X). Under the PRA, the Bureau may not conduct or sponsor, and, notwithstanding any other provision of law, a person is not required to respond to an information collection unless the information collection displays a valid control number assigned by OMB.

The Bureau has determined that this Proposed Rule would not impose any new or revised information collection requirements (recordkeeping, reporting, or disclosure requirements) on covered entities or members of the public that would constitute collections of information requiring OMB approval under the PRA. The Bureau welcomes comments on this determination or any other aspect of this proposal for purposes of the PRA. Comments should be submitted as outlined in the ADDRESSES section above. All comments will become a matter of public record.

(A) Services, together with any affiliates, 5,000 or fewer mortgage loans, for all of which the servicer (or an affiliate) is the creditor or assignee;

(B) Is a Housing Finance Agency, as defined in 24 CFR 266.5; or

(C) Is a nonprofit entity that services 5,000 or fewer mortgage loans, including any mortgage loans serviced on behalf of associated nonprofit entities, for all of which the servicer or an associated nonprofit entity is the creditor. For purposes of this paragraph (e)(4)(ii)(C), the following definitions apply:

(1) The term “nonprofit entity” means an entity having a tax exemption ruling or determination letter from the Internal Revenue Service under section 501(c)(3) of the Internal Revenue Code of 1986 (26 U.S.C. 501(c)(3); 26 CFR 1.501(c)(3)-1), and;

(2) The term “associated nonprofit entities” means nonprofit entities that by agreement operate using a common name, trademark, or servicemark to further and support a common charitable mission or purpose.

(iii) Small servicer determination. In determining whether a servicer is a small servicer pursuant to paragraph (e)(4)(ii)(A) of this section, the servicer is evaluated based on the mortgage loans serviced by the servicer and any affiliates as of January 1 and for the remainder of the calendar year. In determining whether a servicer is a small servicer pursuant to paragraph (e)(4)(ii)(C) of this section, the servicer is evaluated based on the mortgage loans serviced by the servicer as of January 1 and for the remainder of the calendar year. A servicer that ceases to qualify as a small servicer will have six months from the time it ceases to qualify or until the next January 1, whichever is later, to comply with any requirements from which the servicer is no longer exempt as a small servicer. The following mortgage loans are not considered in determining whether a servicer qualifies as a small servicer:

3. Section 1026.43 is amended by revising paragraph (a)(3)(v)(D)(1) and the introductory text of paragraph (e)(3)(i) and adding new paragraphs (a)(3)(vii) and (e)(3)(iii) to read as follows:§ 1026.43 Minimum standards for transactions secured by a dwelling.

(a) * * *

(3) * * *

(v) * * *

(D) * * *

(1) During the calendar year preceding receipt of the consumer's application, the creditor extended credit secured by a dwelling no more than 200 times, except as provided in paragraph (a)(3)(vii) of this section;

(vii) Consumer credit transactions that meet the following criteria are not considered in determining whether a creditor exceeds the credit extension limitation in paragraph (a)(3)(v)(D)(1) of this section:

(A) The transaction is secured by a subordinate lien;

(B) The transaction is for the purpose of:

(1) Downpayment, closing costs, or other similar home buyer assistance, such as principal or interest subsidies;

(2) Property rehabilitation assistance;

(3) Energy efficiency assistance; or

(4) Foreclosure avoidance or prevention;

(C) The credit contract does not require payment of interest;

(D) The credit contract provides that repayment of the amount of the credit extended is:

(1) Forgiven either incrementally or in whole, at a date certain, and subject only to specified ownership and occupancy conditions, such as a requirement that the consumer maintain the property as the consumer's principal dwelling for five years;

(2) Deferred for a minimum of 20 years after consummation of the transaction;

(3) Deferred until sale of the property securing the transaction; or

(4) Deferred until the property securing the transaction is no longer the principal dwelling of the consumer;

(E) The total of costs payable by the consumer in connection with the transaction at consummation is less than 1 percent of the amount of credit extended and includes no charges other than:

(1) Fees for recordation of security instruments, deeds, and similar documents;

(2) A bona fide and reasonable application fee; and

(3) A bona fide and reasonable fee for housing counseling services; and

(F) The creditor complies with all other applicable requirements of this part in connection with the transaction.

(e) * * *

(3) * * *. (i) Except as provided in paragraph (e)(3)(iii) of this section, a covered transaction is not a qualified mortgage unless the transaction's total points and fees, as defined in § 1026.32(b)(1), do not exceed:

(iii) If the creditor or assignee determines after consummation that the total points and fees payable in connection with a loan exceed the applicable limit under paragraph (e)(3)(i) of this section, the loan is not precluded from being a qualified mortgage, provided:

(A) The creditor originated the loan in good faith as a qualified mortgage and the loan otherwise meets the requirements of paragraphs (e)(2), (e)(4), (e)(5), (e)(6), or (f) of this section, as applicable;

(B) Within 120 days after consummation, the creditor or assignee refunds to the consumer the dollar amount by which the transaction's points and fees exceeded the applicable limit under paragraph (e)(3)(i) of this section at consummation; and

(C) The creditor or assignee, as applicable, maintains and follows policies and procedures for post-consummation review of loans and refunding to consumers amounts that exceed the applicable limit under paragraph (e)(3)(i) of this section.

4. In Supplement I to part 1026:a. Under Section 1026.41—Periodic Statements for Residential Mortgage Loans:i. Under Paragraph 41(e)(4)(ii) Small servicer defined, paragraph 2 is revised and paragraph 4 is added.ii. Under Paragraph 41(e)(4)(iii) Small servicer determination, paragraphs 2 and 3 are revised and paragraphs 4 and 5 are added.b. Under Section 1026.43—Minimum Standards for Transactions Secured by a Dwelling:i. New subheading Paragraph 43(a)(3)(vii) and paragraph 1 under that subheading are added.ii. New subheading Paragraph 43(e)(3)(iii) and paragraphs 1 and 2 under that subheading are added.

The revisions read as follows:

Supplement I to Part 1026—Official InterpretationsSubpart E—Special Rules for Certain Home Mortgage Transactions

Section 1026.41—Periodic Statements for Residential Mortgage Loans

41(e)(4)(ii) Small servicer defined.

2. Services, together with affiliates, 5,000 or fewer mortgage loans. To qualify as a small servicer under § 1026.41(e)(4)(ii)(A), a servicer must service, together with any affiliates, 5,000 or fewer mortgage loans, for all of which the servicer (or an affiliate) is the creditor or assignee. There are two elements to satisfying § 1026.41(e)(4)(ii)(A). First, a servicer, together with any affiliates, must service 5,000 or fewer mortgage loans. Second, a servicer must service only mortgage loans for which the servicer (or an affiliate) is the creditor or assignee. To be the creditor or assignee of a mortgage loan, the servicer (or an affiliate) must either currently own the mortgage loan or must have been the entity to which the mortgage loan obligation was initially payable (that is, the originator of the mortgage loan). A servicer is not a small servicer under § 1026.41(e)(4)(ii)(A) if it services any mortgage loans for which the servicer or an affiliate is not the creditor or assignee (that is, for which the servicer or an affiliate is not the owner or was not the originator). The following two examples demonstrate circumstances in which a servicer would not qualify as a small servicer under § 1026.41(e)(4)(ii)(A) because it did not meet both requirements under § 1026.41(e)(4)(ii)(A) for determining a servicer's status as a small servicer:

4. Nonprofit entity that services 5,000 or fewer mortgage loans. To qualify as a small servicer under § 1026.41(e)(4)(ii)(C), a servicer must be a nonprofit entity that services 5,000 or fewer mortgage loans, including any mortgage loans serviced on behalf of associated nonprofit entities, for all of which the servicer or an associated nonprofit entity is the creditor. There are two elements to satisfying § 1026.41(e)(4)(ii)(C). First, a nonprofit entity must service 5,000 or fewer mortgage loans, including any mortgage loans serviced on behalf of associated nonprofit entities. For each associated nonprofit entity, the small servicer determination is made separately, without consideration of the number of loans serviced by another associated nonprofit entity. Second, a nonprofit entity must service only mortgage loans for which the servicer (or an associated nonprofit entity) is the creditor. To be the creditor, the servicer (or an associated nonprofit entity) must have been the entity to which the mortgage loan obligation was initially payable (that is, the originator of the mortgage loan). A nonprofit entity is not a small servicer under § 1026.41(e)(4)(ii)(C) if it services any mortgage loans for which the servicer (or an associated nonprofit entity) is not the creditor (that is, for which the servicer or an associated nonprofit entity was not the originator). The first of the following two examples demonstrates circumstances in which a nonprofit entity would qualify as a small servicer under § 1026.41(e)(4)(ii)(C) because it meets both requirements for determining a nonprofit entity's status as a small servicer under § 1026.41(e)(4)(ii)(C). The second example demonstrates circumstances in which a nonprofit entity would not qualify as a small servicer under § 1026.41(e)(4)(ii)(C) because it does not meet both requirements under § 1026.41(e)(4)(ii)(C).

i. Nonprofit entity A services 3,000 of its own mortgage loans, and 1,500 mortgage loans on behalf of associated nonprofit entity B. All 4,500 mortgage loans were originated by A or B. Associated nonprofit entity C services 2,500 mortgage loans, all of which it originated. Because the number of mortgage loans serviced by a nonprofit entity is determined by counting the number of mortgage loans serviced by the nonprofit entity (including mortgage loans serviced on behalf of associated nonprofit entities) but not counting any mortgage loans serviced by an associated nonprofit entity, A and C are both small servicers.

ii. A nonprofit entity services 4,500 mortgage loans—3,000 mortgage loans it originated, 1,000 mortgage loans originated by associated nonprofit entities, and 500 mortgage loans neither it nor an associated nonprofit entity originated. The nonprofit entity is not a small servicer because it services mortgage loans for which neither it nor an associated nonprofit entity is the creditor, notwithstanding that it services fewer than 5,000 mortgage loans.

41(e)(4)(iii) Small servicer determination.

2. Timing for small servicer exemption. The following examples demonstrate when a servicer either is considered or is no longer considered a small servicer for purposes of § 1026.41(e)(4)(ii)(A) and (C):

i. Assume a servicer (that as of January 1 of the current year qualifies as a small servicer) begins servicing more than 5,000 mortgage loans on October 1, and services more than 5,000 mortgage loans as of January 1 of the following year. The servicer would no longer be considered a small servicer on January 1 of that following year and would have to comply with any requirements from which it is no longer exempt as a small servicer on April 1 of that following year.

ii. Assume a servicer (that as of January 1 of the current year qualifies as a small servicer) begins servicing more than 5,000 mortgage loans on February 1, and services more than 5,000 mortgage loans as of January 1 of the following year. The servicer would no longer be considered a small servicer on January 1 of that following year and would have to comply with any requirements from which it is no longer exempt as a small servicer on that same January 1.

iii. Assume a servicer (that as of January 1 of the current year qualifies as a small servicer) begins servicing more than 5,000 mortgage loans on February 1, but services fewer than 5,000 mortgage loans as of January 1 of the following year. The servicer is considered a small servicer for that following year.

3. Mortgage loans not considered in determining whether a servicer is a small servicer. Mortgage loans that are not considered pursuant to § 1026.41(e)(4)(iii) for purposes of the small servicer determination under § 1026.41(e)(4)(ii)(A) are not considered either for determining whether a servicer (together with any affiliates) services 5,000 or fewer mortgage loans or whether a servicer is servicing only mortgage loans that it (or an affiliate) owns or originated. For example, assume a servicer services 5,400 mortgage loans. Of these mortgage loans, the servicer owns or originated 4,800 mortgage loans, voluntarily services 300 mortgage loans that neither it (nor an affiliate) owns or originated and for which the servicer does not receive any compensation or fees, and services 300 reverse mortgage transactions. The voluntarily serviced mortgage loans and reverse mortgage loans are not considered in determining whether the servicer qualifies as a small servicer. Thus, because only the 4,800 mortgage loans owned or originated by the servicer are considered in determining whether the servicer qualifies as a small servicer, the servicer qualifies for the small servicer exemption pursuant to § 1026.41(e)(4)(ii)(A) with regard to all 5,400 mortgage loans it services.

4. Mortgage loans not considered in determining whether a nonprofit entity is a small servicer. Mortgage loans that are not considered pursuant to § 1026.41(e)(4)(iii) for purposes of the small servicer determination under § 1026.41(e)(4)(ii)(C) are not considered either for determining whether a nonprofit entity services 5,000 or fewer mortgage loans, including any mortgage loans serviced on behalf of associated nonprofit entities, or whether a nonprofit entity is servicing only mortgage loans that it or an associated nonprofit entity originated. For example, assume a servicer that is a nonprofit entity services 5,400 mortgage loans. Of these mortgage loans, the nonprofit entity originated 2,800 mortgage loans and associated nonprofit entities originated 2,000 mortgage loans. The nonprofit entity receives compensation for servicing the loans originated by associated nonprofits. The nonprofit entity also voluntarily services 600 mortgage loans that were originated by an entity that is not an associated nonprofit entity, and receives no compensation or fees for servicing these loans. The voluntarily serviced mortgage loans are not considered in determining whether the servicer qualifies as a small servicer. Thus, because only the 4,800 mortgage loans originated by the nonprofit entity or associated nonprofit entities are considered in determining whether the servicer qualifies as a small servicer, the servicer qualifies for the small servicer exemption pursuant to § 1026.41(e)(4)(ii)(C) with regard to all 5,400 mortgage loans it services.

5. Limited role of voluntarily serviced mortgage loans. Reverse mortgages and mortgage loans secured by consumers' interests in timeshare plans, in addition to not being considered in determining small servicer qualification, are also exempt from the requirements of § 1026.41. In contrast, although voluntarily serviced mortgage loans, as defined by § 1026.41(e)(4)(iii)(A), are likewise not considered in determining small servicer status, they are not exempt from the requirements of § 1026.41. Thus, a servicer that does not qualify as a small servicer would not have to provide periodic statements for reverse mortgages and timeshare plans because they are exempt from the rule, but would have to provide periodic statements for mortgage loans it voluntarily services.

Section 1026.43—Minimum Standards for Transactions Secured by a DwellingParagraph 43(a)(3)(vii).

1. Requirements of exclusion. Section 1026.43(a)(3)(vii) excludes certain transactions from the credit extension limit set forth in § 1026.43(a)(3)(v)(D)(1), provided a transaction meets several conditions. The terms of the credit contract must satisfy the conditions that the transaction not require the payment of interest under § 1026.43(a)(3)(vii)(C) and that repayment of the amount of credit extended be forgiven or deferred in accordance with § 1026.43(a)(3)(vii)(D). The other requirements of § 1026.43(a)(3)(vii) need not be reflected in the credit contract, but the creditor must retain evidence of compliance with those provisions, as required by § 1026.25(a). In particular, the creditor must have information reflecting that the total of closing costs imposed in connection with the transaction is less than 1 percent of the amount of credit extended and include no charges other than recordation, application, and housing counseling fees, in accordance with § 1026.43(a)(3)(vii)(E). Unless an itemization of the amount financed sufficiently details this requirement, the creditor must establish compliance with § 1026.43(a)(3)(vii)(E) by some other written document and retain it in accordance with § 1026.25(a).

Paragraph 43(e)(3)(iii)

1. Originated in good faith as a qualified mortgage. i. The following may be evidence that a creditor originated a loan in good faith as a qualified mortgage:

A. A creditor maintains and follows policies and procedures designed to ensure that points and fees are correctly calculated and do not exceed the applicable limit under § 1026.43(e)(3)(i); or

B. The pricing for the loan is consistent with pricing on qualified mortgages originated contemporaneously by the same creditor.

ii. In contrast, the following may be evidence that a loan was not originated in good faith as a qualified mortgage:

A. A creditor does not maintain, or the creditor has, but does not follow, policies and procedures designed to ensure that points and fees are correctly calculated and do not exceed the applicable limit under § 1026.43(e)(3)(i); or

B. The pricing for the loan is not consistent with pricing on qualified mortgages originated contemporaneously by the same creditor.

2. Policies and procedures for post-consummation review and refunding. A creditor or assignee satisfies § 1026.43(e)(3)(iii)(C) if it maintains and follows policies and procedures for post-consummation quality control loan review and for curing (by providing a refund) errors in points and fees calculations that occur at or before consummation.

You may examine the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2014-0292; or in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this proposed AD, the regulatory evaluation, any comments received, and other information. The street address for the Docket Office (telephone (800) 647-5527) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2014-0292; Directorate Identifier 2014-CE-011-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD because of those comments.

We will post all comments we receive, without change, to http://regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD.

Discussion

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Community, has issued AD No.: 2014-0067, dated March 18, 2014 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:

Control cable pulleys made from plastic (white or brown material) in the rudder control unit were reported to develop cracks due to aging. In one case, jamming of the rudder control unit was reported.

This condition, if not detected and corrected, could cause cable pulleys to break, potentially jamming the rudder control unit and resulting in loss of control of the sailplane.

To address this potential unsafe condition, Fiberglas-Technik issued Technische Mitteilung/Service Bulletin TM-G05/SB-G05 and Anweisung/Instructions A/I-G05 (one document) to provide instructions for the replacement of plastic cable pulleys with pulleys made from aluminium.

For the reason described above, this AD requires identification and replacement of plastic cable pulleys in the rudder control unit.

Plastic cable pulleys may also be installed in the cable circuits of pedal adjustment and/or tow hook actuation, their replacement is not required by this AD.

You may examine the MCAI on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2014-0292.Relevant Service Information

Fiberglas-Technik Rudolf Lindner GmbH & Co. KG has issued Service Bulletin SB-G05, dated January 17, 2014; and Instructions A/I-G05, dated January 17, 2014. The actions described in this service information are intended to correct the unsafe condition identified in the MCAI.

FAA's Determination and Requirements of the Proposed AD

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with this State of Design Authority, they have notified us of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all information and determined the unsafe condition exists and is likely to exist or develop on other products of the same type design.

Costs of Compliance

We estimate that this proposed AD will affect 118 products of U.S. registry. We also estimate that it would take about .5 work-hour per product to comply with the basic requirements of this proposed AD. The average labor rate is $85 per work-hour.

Based on these figures, we estimate the cost of the proposed AD on U.S. operators to be $5,015, or $42.50 per product.

In addition, we estimate that any necessary follow-on actions would take about 2 work-hours and require parts costing $244, for a cost of $414 per product. We have no way of determining the number of products that may need these actions.

Authority for This Rulemaking

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

Regulatory Findings

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify this proposed regulation:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This AD was prompted by mandatory continuing airworthiness information (MCAI) originated by an aviation authority of another country to identify and correct an unsafe condition on an aviation product. The MCAI describes the unsafe condition as plastic control cable pulleys developing cracks due to aging. We are issuing this proposed AD to detect and correct plastic control cable pulleys in the rudder control unit, which could lead to breaking of the pulley and potentially jamming the rudder control unit, possibly resulting in loss of control of the glider.

(f) Actions and Compliance

Comply with this AD within the compliance times specified in paragraphs (f)(1) through (f)(3) of this AD, unless already done.

(1) For all Models G103C TWIN III ACRO and G 103 C Twin III SL gliders: Within 3 months after the effective date of this AD, inspect the rudder control unit for installation of plastic cable pulleys. If plastic cable pulleys are installed, before further flight, replace the plastic cable pulleys with aluminum cable pulleys following the actions and instructions of Fiberglas-Technik Rudolf Lindner GmbH & Co. KG Service Bulletin SB-G05 and Fiberglas-Technik Rudolf Lindner GmbH & Co. KG Instructions A/I-G05, both dated January 17, 2014.

(3) As of the effective date of this AD, do not install any plastic control cable pulley in the rudder control unit of any glider identified in paragraphs (c)(1) through (c)(7) of this AD.

(g) Other FAA AD Provisions

The following provisions also apply to this AD:

(1) Alternative Methods of Compliance (AMOCs): The Manager, Standards Office, FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. Send information to ATTN: Jim Rutherford, Aerospace Engineer, FAA, Small Airplane Directorate, 901 Locust, Room 301, Kansas City, Missouri 64106; telephone: (816) 329-4165; fax: (816) 329-4090; email: jim.rutherford@faa.gov. Before using any approved AMOC on any airplane to which the AMOC applies, notify your appropriate principal inspector (PI) in the FAA Flight Standards District Office (FSDO), or lacking a PI, your local FSDO.

(2) Airworthy Product: For any requirement in this AD to obtain corrective actions from a manufacturer or other source, use these actions if they are FAA-approved. Corrective actions are considered FAA-approved if they are approved by the State of Design Authority (or their delegated agent). You are required to assure the product is airworthy before it is returned to service.

(h) Related Information

Refer to European Aviation Safety Agency (EASA) AD No.: 2014-0067, dated March 18, 2014, for related information. You may examine the MCAI on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2014-0292. For service information related to this AD, contact Fiberglas-Technik Rudolf Lindner GmbH & Co. KG, Steige 3, D-88487 Walpertshofen, Germany; telephone: +49 (0) 7353/22 43; fax: +49 (0) 7353/30 96; email: info@LTB-Lindner.com; Web site: http://www.ltb-lindner.com/home.104.html. You may review this referenced service information at the FAA, Small Airplane Directorate, 901 Locust, Kansas City, Missouri 64106. For information on the availability of this material at the FAA, call (816) 329-4148.

This action proposes to amend Class E airspace extending upward from 1,200 feet above the surface within the boundary of the state of South Dakota. With the increased use of GPS/GNSS navigation systems, pilots routinely file and fly flight plans using point-to-point routes instead of published airways. Often, these point-to-point routes take aircraft through uncontrolled airspace (Class G). With this proposal, Minneapolis Air Route Traffic Control Center (ARTCC) would provide more expeditious service and increased efficiency within the National Airspace System.

DATES:

Comments must be received on or before June 20, 2014.

ADDRESSES:

Send comments on this proposal to the U.S. Department of Transportation, Docket Operations, 1200 New Jersey Avenue SE., West Building Ground Floor, Room W12-140, Washington, DC 20590-0001. You must identify the docket number FAA-2014-0198/Airspace Docket No. 14-AGL-8, at the beginning of your comments. You may also submit comments through the Internet at http://www.regulations.gov. You may review the public docket containing the proposal, any comments received, and any final disposition in person in the Dockets Office between 9:00 a.m. and 5:00 p.m., Monday through Friday, except Federal holidays. The Docket Office (telephone 1-800-647-5527), is on the ground floor of the building at the above address.

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments, as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. Communications should identify both docket numbers and be submitted in triplicate to the address listed above. Commenters wishing the FAA to acknowledge receipt of their comments on this notice must submit with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. FAA-2014-0198/Airspace Docket No. 14-AGL-8.” The postcard will be date/time stamped and returned to the commenter.

Availability of NPRMs

An electronic copy of this document may be downloaded through the Internet at http://www.regulations.gov. Recently published rulemaking documents can also be accessed through the FAA's Web page at http://www.faa.gov/airports_airtraffic/air_traffic/publications/airspace_amendments/.

You may review the public docket containing the proposal, any comments received and any final disposition in person in the Dockets Office (see ADDRESSES section for address and phone number) between 9:00 a.m. and 5:00 p.m., Monday through Friday, except Federal holidays. An informal docket may also be examined during normal business hours at the office of the Central Service Center, 2601 Meacham Blvd., Fort Worth, TX 76137.

Persons interested in being placed on a mailing list for future NPRMs should contact the FAA's Office of Rulemaking (202) 267-9677, to request a copy of Advisory Circular No. 11-2A, Notice of Proposed Rulemaking Distribution System, which describes the application procedure.

The Proposal

This action proposes to amend Title 14, Code of Federal Regulations (14 CFR), Part 71 by amending Class E airspace extending upward from 1,200 feet above the surface within the state of South Dakota. This action would enable Minneapolis ARTCC to have greater latitude to use radar vectors and/or altitude changes that would provide a more efficient use of airspace within the NAS.

Class E airspace areas are published in Paragraph 6005 of FAA Order 7400.9X, dated August 7, 2013 and effective September 15, 2013, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designation listed in this document would be published subsequently in the Order.

The FAA has determined that this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore, (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a Regulatory Evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it would amend controlled airspace within the state of South Dakota.

Environmental Review

This proposal will be subject to an environmental analysis in accordance with FAA Order 1050.1E, “Environmental Impacts: Policies and Procedures” prior to any FAA final regulatory action.

List of Subjects in 14 CFR Part 71

Airspace, Incorporation by reference, Navigation (Air)

The Proposed Amendment

In consideration of the foregoing, the Federal Aviation Administration proposes to amend 14 CFR Part 71 as follows:

PART 71—DESIGNATION OF CLASS A, B, C, D, AND E AIRSPACE AREAS; AIR TRAFFIC SERVICE ROUTES; AND REPORTING POINTS1. The authority citation for part 71 continues to read as follows: Authority:

This action proposes to amend Class E5 airspace extending upward from 1,200 feet above the surface within the boundary of the state of Michigan. With the increased use of GPS/GNSS navigation systems, pilots routinely file and fly flight plans using point-to-point routes instead of published airways. Often, these point-to-point routes take aircraft through uncontrolled airspace (Class G). With this proposal, Minneapolis Air Route Traffic Control Center (ARTCC) would provide more expeditious service and increased efficiency within the National Airspace System (NAS).

DATES:

Comments must be received on or before June 20, 2014.

ADDRESSES:

Send comments on this proposal to the U.S. Department of Transportation, Docket Operations, 1200 New Jersey Avenue SE., West Building Ground Floor, Room W12-140, Washington, DC 20590-0001. You must identify the docket number FAA-2014-0197/Airspace Docket No. 14-AGL-5, at the beginning of your comments. You may also submit comments through the Internet at http://www.regulations.gov. You may review the public docket containing the proposal, any comments received, and any final disposition in person in the Dockets Office between 9:00 a.m. and 5:00 p.m., Monday through Friday, except Federal holidays. The Docket Office (telephone 1-800-647-5527), is on the ground floor of the building at the above address.

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments, as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. Communications should identify both docket numbers and be submitted in triplicate to the address listed above. Commenters wishing the FAA to acknowledge receipt of their comments on this notice must submit with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. FAA-2014-0197/Airspace Docket No. 14-AGL-5.” The postcard will be date/time stamped and returned to the commenter.

Availability of NPRMs

An electronic copy of this document may be downloaded through the Internet at http://www.regulations.gov. Recently published rulemaking documents can also be accessed through the FAA's Web page at http://www.faa.gov/airports_airtraffic/air_ traffic/publications/airspace_amendments/.

You may review the public docket containing the proposal, any comments received and any final disposition in person in the Dockets Office (see ADDRESSES section for address and phone number) between 9:00 a.m. and 5:00 p.m., Monday through Friday, except Federal holidays. An informal docket may also be examined during normal business hours at the office of the Central Service Center, 2601 Meacham Blvd., Fort Worth, TX 76137.

Persons interested in being placed on a mailing list for future NPRMs should contact the FAA's Office of Rulemaking (202) 267-9677, to request a copy of Advisory Circular No. 11-2A, Notice of Proposed Rulemaking Distribution System, which describes the application procedure.

The Proposal

This action proposes to amend Title 14, Code of Federal Regulations (14 CFR), Part 71 by amending Class E airspace extending upward from 1,200 feet above the surface within the state of Michigan. This action would enable Minneapolis ARTCC to have greater latitude to use radar vectors and/or altitude changes that would provide a more efficient use of airspace within the NAS.

Class E airspace designations areas are published in Paragraph 6005 of FAA Order 7400.9X, dated August 7, 2013 and effective September 15, 2013, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designation listed in this document would be published subsequently in the Order.

The FAA has determined that this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore, (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a Regulatory Evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it would amend Class E5 airspace within the state of Michigan.

Environmental Review

This proposal will be subject to an environmental analysis in accordance with FAA Order 1050.1E, “Environmental Impacts: Policies and Procedures” prior to any FAA final regulatory action.

List of Subjects in 14 CFR Part 71

Airspace, Incorporation by reference, Navigation (Air).

The Proposed Amendment

In consideration of the foregoing, the Federal Aviation Administration proposes to amend 14 CFR Part 71 as follows:

PART 71—DESIGNATION OF CLASS A, B, C, D, AND E AIRSPACE AREAS; AIR TRAFFIC SERVICE ROUTES; AND REPORTING POINTS1. The authority citation for part 71 continues to read as follows: Authority:

This action proposes to establish Class E airspace extending upward from 1,200 feet above the surface within the boundary of the state of North Dakota. With the increased use of GPS/GNSS navigation systems, pilots routinely file and fly flight plans using point-to-point routes instead of published airways. Often, these point-to-point routes take aircraft through uncontrolled airspace (Class G). With this proposal, Minneapolis Air Route Traffic Control Center (ARTCC) would provide a more expeditious service and increased efficiency within the National Airspace System (NAS).

DATES:

Comments must be received on or before June 20, 2014.

ADDRESSES:

Send comments on this proposal to the U.S. Department of Transportation, Docket Operations, 1200 New Jersey Avenue SE., West Building Ground Floor, Room W12-140, Washington, DC 20590-0001. You must identify the docket number FAA-2014-0199/Airspace Docket No. 14-AGL-9, at the beginning of your comments. You may also submit comments through the Internet at http://www.regulations.gov. You may review the public docket containing the proposal, any comments received, and any final disposition in person in the Dockets Office between 9:00 a.m. and 5:00 p.m., Monday through Friday, except Federal holidays. The Docket Office (telephone 1-800-647-5527), is on the ground floor of the building at the above address.

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments, as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. Communications should identify both docket numbers and be submitted in triplicate to the address listed above. Commenters wishing the FAA to acknowledge receipt of their comments on this notice must submit with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. FAA-2014-0199/Airspace Docket No. 14-AGL-9.” The postcard will be date/time stamped and returned to the commenter.

Availability of NPRMs

An electronic copy of this document may be downloaded through the Internet at http://www.regulations.gov. Recently published rulemaking documents can also be accessed through the FAA's Web page at http://www.faa.gov/airports_airtraffic/air_traffic/publications/airspace_amendments/.

You may review the public docket containing the proposal, any comments received and any final disposition in person in the Dockets Office (see ADDRESSES section for address and phone number) between 9:00 a.m. and 5:00 p.m., Monday through Friday, except Federal holidays. An informal docket may also be examined during normal business hours at the office of the Central Service Center, 2601 Meacham Blvd., Fort Worth, TX 76137.

Persons interested in being placed on a mailing list for future NPRMs should contact the FAA's Office of Rulemaking (202) 267-9677, to request a copy of Advisory Circular No. 11-2A, Notice of Proposed Rulemaking Distribution System, which describes the application procedure.

The Proposal

This action proposes to amend Title 14, Code of Federal Regulations (14 CFR), Part 71 by amending Class E airspace extending upward from 1,200 feet above the surface within the state of North Dakota. This action would enable Minneapolis ARTCC to have greater latitude to use radar vectors and/or altitude changes that would provide a more efficient use of airspace within the NAS.

Class E airspace areas are published in Paragraph 6005 of FAA Order 7400.9X, dated August 7, 2013 and effective September 15, 2013, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designation listed in this document would be published subsequently in the Order.

The FAA has determined that this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore, (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a Regulatory Evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rulemaking, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This proposed regulation is within the scope of that authority as it would establish controlled airspace within the state of North Dakota.

Environmental Review

This proposal will be subject to an environmental analysis in accordance with FAA Order 1050.1E, “Environmental Impacts: Policies and Procedures” prior to any FAA final regulatory action.

List of Subjects in 14 CFR Part 71

Airspace, Incorporation by reference, Navigation (Air)

The Proposed Amendment

In consideration of the foregoing, the Federal Aviation Administration proposes to amend 14 CFR Part 71 as follows:

PART 71—DESIGNATION OF CLASS A, B, C, D, AND E AIRSPACE AREAS; AIR TRAFFIC SERVICE ROUTES; AND REPORTING POINTS1. The authority citation for part 71 continues to read as follows: Authority:

The Food and Drug Administration (FDA or Agency) is proposing a regulation to implement its authority to destroy a drug valued at $2,500 or less (or such higher amount as the Secretary of the Treasury may set by regulation) that has been refused admission into the United States under the Federal Food, Drug, and Cosmetic Act (FD&C Act), by providing to the owner or consignee notice and an opportunity to appear and introduce testimony to the Agency prior to the destruction. The proposed regulation is authorized by amendments made to the FD&C Act by the Food and Drug Administration Safety and Innovation Act (FDASIA). Once finalized, this proposed regulation will allow FDA to better protect the public health by providing an administrative process for the destruction of certain refused drugs, thus increasing the integrity of the drug supply chain.

DATES:

Submit either electronic or written comments on the proposed rule by July 7, 2014.

ADDRESSES:

You may submit comments, identified by Docket No. FDA-2014-N-0504, by any of the following methods.

Instructions: All submissions received must include the Agency name and Docket No. FDA-2014-N-0504 for this rulemaking. All comments received may be posted without change to http://www.regulations.gov, including any personal information provided. For additional information on submitting comments, see the “Comments” heading of the SUPPLEMENTARY INFORMATION section of this document.

Docket: For access to the docket to read background documents or comments received, go to http://www.regulations.gov and insert the docket number(s), found in brackets in the heading of this document, into the “Search” box and follow the prompts and/or go to the Division of Dockets Management, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852.

The proposed rule would provide the owner or consignee of a drug that has been refused admission into the United States, and that is valued at $2,500 or less (or such higher amount as the Secretary of the Treasury may set by regulation) with (1) written notice that FDA intends to destroy the drug and (2) an opportunity to present testimony to the Agency before the drug is destroyed. In 2012, Congress amended section 801(a) of the FD&C Act (21 U.S.C. 381(a)) to provide FDA with the authority to destroy these refused drugs without providing the owner or consignee with the opportunity to export the drug. Congress directed FDA to issue regulations that provide the drug's owner or consignee with notice and an opportunity to present testimony to the Agency prior to the drug's destruction. (Section 708 of FDASIA (Pub. L. 112-144).) This provision, as well as section 701 of the FD&C Act (21 U.S.C. 371), provide the legal authority for this proposed rule.

Summary of the Major Provisions of the Proposed Regulatory Action

This proposed rule would provide the owner or consignee of a drug that has been refused admission into the United States under section 801(a) of the FD&C Act, and that is valued at $2,500 or less (or such higher amount as the Secretary of the Treasury may set by regulation) with (1) written notice that FDA intends to destroy the drug and (2) notice and an opportunity to present testimony to the Agency before the drug is destroyed.

FDA proposes to amend part 1 (21 CFR part 1) by expanding the scope of § 1.94 (21 CFR 1.94). Currently this regulation provides the owner or consignee of an FDA-regulated product offered for import into the United States with notice and opportunity to present testimony to the Agency prior to refusal of admission of the product. The proposed rule would expand the scope of § 1.94 to provide an owner or consignee with notice and opportunity to present testimony to the Agency prior to the destruction of certain refused drugs.

Costs and Benefits

The primary public health benefit from adoption of the proposed rule would be the value of the illnesses and deaths avoided because FDA destroyed a drug valued at $2,500 or less (or such higher amount as the Secretary of the Treasury may set by regulation) that posed a public health risk. This benefit accrues whenever the Agency's other enforcement tools would not have prevented a drug that does not comply with the requirements of the FD&C Act (violative drug) from entering the U.S. market. The estimated primary costs of the proposed rule, if finalized, include the additional costs to destroy a violative drug. The Agency estimates the quantifiable net annual social benefit of the proposed rule to range between $228,000 and $618,000.

I. Background and Legal Authority

On July 9, 2012, President Obama signed FDASIA into law. Title VII of FDASIA provides FDA with important new authorities to help the Agency better protect the integrity of the drug supply chain. One of those new authorities is in section 708, which amends section 801(a) of the FD&C Act, to provide FDA with the authority to use an administrative procedure to destroy a drug valued at $2,500 or less (or such higher amount as the Secretary of the Treasury may set by regulation) that was not brought into compliance as described in section 801(b) of the FD&C Act and was refused admission into the United States. Section 708 of FDASIA authorizes FDA to use this new administrative procedure without offering the owner or consignee the opportunity to export the drug. Section 708 further provides that FDA will store and, as applicable, dispose of the drug that the Agency intends to destroy. The drug's owner or consignee is liable for FDA's storage and disposal costs pursuant to section 801(c) of the FD&C Act.

FDA is issuing this proposed rule to implement section 708 of FDASIA. That provision directs FDA to issue regulations that provide the owner or consignee of a drug valued at $2,500 or less (or such higher amount as the Secretary of the Treasury may set by regulation) that has been refused admission with notice and an opportunity to introduce testimony to the Agency prior to the destruction of the drug. The provision further states that this process may be combined with the notice and opportunity to appear before FDA and introduce testimony on the admissibility of the drug under section 801(a) of the FD&C Act, as long as appropriate notice is provided to the owner or consignee. FDA is also issuing this proposed rule under section 701(b) of the FD&C Act, which authorizes regulations for the efficient enforcement of section 801 of the FD&C Act.

A drug that is imported or offered for import is subject to refusal of admission under section 801(a) of the FD&C Act if, among other reasons, it is or appears to be adulterated, misbranded, or unapproved in violation of section 505 of the FD&C Act (21 U.S.C. 355). Under current regulation § 1.94, FDA issues a notice of the Agency's intention to refuse a drug to the owner or consignee, as defined in § 1.83, stating the reasons for the intended refusal. If the article is sent by international mail, FDA generally considers the addressee of the parcel to be the owner or consignee. If this notice is to an individual who is importing a drug for personal use, it is issued consistent with the requirements of section 801(g) of the FD&C Act. The owner or consignee is given an opportunity to appear before the Agency and introduce testimony orally or in writing on why the drug should not be refused admission into the United States. The owner or consignee can also submit an application for authorization to recondition the drug to bring it into compliance with the FD&C Act or to render it other than a food, drug, device, or cosmetic. If, after providing the owner or consignee with notice and opportunity to present testimony, FDA determines that the drug should be refused admission, a notice of such refusal is issued to the owner or consignee.

The majority of refused drug products subject to FDA's new destruction authority come into the United States via an International Mail Facility (IMF) or an express courier hub. Parcels that come into the United States via an IMF are routed by the United States Postal Service (USPS) to Customs and Border Protection (CBP). CBP interdicts certain drug shipments and turns them over to FDA for examination and a determination of admission under the FD&C Act. Some of these parcels may include one or more drugs that are unapproved, adulterated and/or misbranded, including counterfeit drugs and drugs that purport to be dietary supplements. USPS estimated that the average daily number of parcels that came into the United States via international mail from November 1, 2011, to October 31, 2012, was nearly 1.2 million (Ref. 1). It is estimated that the number of such parcels which contain drugs that enter the United States each year through the IMFs is between 20 million and 100 million.

Operation Safeguard is a multiagency initiative to target illicit imports of prescription drugs. In total, from fiscal years 2010 through 2012, FDA examined nearly 45,000 shipments and CBP seized more than 14,000 illicit shipments of prescription drugs during Operation Safeguard, with international mail shipments constituting the majority of the shipments that were seized (Ref. 1). Despite these efforts, the high volume of inbound international mail shipments has strained limited Federal resources at the IMFs making it extremely difficult to interdict all incoming shipments of violative drugs.

Violative drugs pose a serious public health threat to consumers in the United States because they might not contain the active ingredient that patients need for the treatment of their disease; they might have too much or too little of an active ingredient; they might contain the wrong active ingredient; and/or they might contain toxic ingredients. For certain classes of drugs (e.g. antibiotics), these quality problems can also increase the likelihood of drug resistance (Ref. 2). By taking these drugs, consumers may be harmed directly by exposure to unsafe drugs or they may be harmed because they are prevented from getting the appropriate dose or strength of medications they need. Adverse events due to these violative drugs are underreported. Patients taking ineffective drugs may die or suffer the adverse effects of the underlying disease, making it difficult to detect or attribute these consequences to the violative drug (Ref. 3).

FDA has issued several warnings about counterfeit and unapproved drugs, including warnings issued in 2012 and 2013 about counterfeit versions of the cancer medicines AVASTIN and ALTUZAN (bevacizumab) approved for marketing outside of the United States, that were purchased by medical practices in the United States. Certain counterfeit versions of these drugs did not contain the active pharmaceutical ingredient, (bevacizumab), which may have resulted in patients not receiving needed therapy (Ref. 4). In July 2013, a British citizen was sentenced to 18 months in prison for distributing adulterated cancer drugs and selling a counterfeit version of ALTUZAN that was obtained from Turkey to physicians in the United States (Ref. 5). As of December 2013, FDA has issued over 1500 letters to medical practices in the United States to educate them about risky buying practices and to warn them about counterfeit and unapproved drugs in U.S. distribution. FDA publishes warnings about counterfeit medications on its Web site at http://www.fda.gov/Drugs/ResourcesForYou/Consumers/BuyingUsingMedicineSafely/CounterfeitMedicine/default.htm.

Many violative drugs are purchased by U.S. consumers over the Internet. In July 2013, the Government Accountability Office (GAO) issued a report on rogue Internet pharmacies. In its report, GAO defined a rogue Internet pharmacy as a fraudulent enterprise that operates in violation of Federal and/or State law, offers cheap drugs for sale without a prescription that meets Federal and State requirements, or operates without a pharmacy license in the United States. These rogue pharmacies may also operate in violation of laws relating to fraud, money laundering and/or intellectual property rights. Rogue Internet pharmacies operate Web sites that may look professional and legitimate, but in reality are often marketplaces for unapproved, adulterated and/or misbranded drugs (Ref. 6). According to the GAO report, LegitScript, an online pharmacy verification service that assesses the legitimacy of Internet pharmacies, determined that there were over 34,000 active rogue Internet pharmacies as of April 2013 (Ref. 7).

FDA has received a number of reports of adverse events resulting from the purchase of violative drugs over the internet. For example, FDA received reports from several consumers who ordered the FDA-approved drugs AMBIEN, XANAX, LEXAPRO, or ATIVAN over the Internet but instead received products containing haloperidol (the active pharmaceutical ingredient in the FDA-approved antipsychotic drug HALDOL). These consumers required emergency medical treatment for symptoms such as difficulty in breathing, muscle spasms, and muscle stiffness—all drug reactions associated with this powerful antipsychotic (Ref. 8). In May 2012, FDA warned consumers about a counterfeit version of ADDERALL (a drug used to treat attention deficit hyperactivity disorders and narcolepsy) containing the wrong active pharmaceutical ingredients, that was being purchased on the Internet (Ref. 9).

Some drugs that are represented and sold as dietary supplements can also present a significant public health risk. For example, some purported dietary supplements actually contain hidden or deceptively labeled active pharmaceutical ingredients, some at levels much higher than those found in drug products that are the subject of approved applications. Such products, especially when taken without physician supervision, can cause harm and have been associated with serious adverse events. Some purported dietary supplements, although they may not contain harmful ingredients, present a significant indirect public health risk because they are promoted to prevent or treat serious diseases but have not been proven safe and effective for that purpose. Instead of seeing a doctor for diagnosis and treatment, naïve consumers may rely on such unproven remedies and may even substitute them for doctor-prescribed medications that have been approved by FDA based on proof of safety and effectiveness.

Approximately 60 percent of the Class I drug recalls for fiscal years 2007 through 2013 involved drugs purported to be dietary supplements. (Class I drug recalls involve public health threats for which there is a reasonable probability that the use of or exposure to a drug will cause serious adverse health consequences or death.) Many of the drugs being unlawfully marketed as dietary supplements are imported into the United States via IMFs and express courier hubs.

Currently, drugs that have been refused admission into the United States under section 801(a) of the FD&C Act are destroyed unless they are exported within 90 days. Certain illegal drugs may also be destroyed if they are seized and condemned under FDA's seizure authority, section 304 of the FD&C Act (21 U.S.C. 334), or if they are seized and forfeited under CBP's seizure and forfeiture authority, such as 19 U.S.C. 1595a(c). Drugs that are imported via an IMF which are refused are sent back to the USPS for export. There is currently little deterrence to prevent sellers from sending violative drugs or resending previously refused drugs into the United States via the IMFs. Drugs refused admission into the United States might be subsequently offered for re-importation by unscrupulous sellers who choose to circumvent the import regulatory systems. In fact, some of the parcels returned by USPS have been resubmitted for entry into the United States by the sender, with the sticker indicating prior refusal by FDA still attached and visible. Under this proposed rule, FDA will be better able to prevent such re-importation by having an administrative mechanism for destroying a drug valued at $2,500 or less (or such higher amount as the Secretary of the Treasury may set by regulation) that has been refused admission.

II. Proposed Changes to Current RegulationsA. Proposed Revisions to Part 1

FDA proposes to amend part 1 to create an implementing regulation for the administrative destruction of refused drugs. The proposed amendment to part 1 consists of amendments to § 1.94.

B. Principal Features of the Proposed Rule

Section 708 of FDASIA authorizes the Agency to destroy certain drugs that have already been refused admission under section 801(a) of the FD&C Act after the owner or consignee receives notice and an opportunity to present testimony before the Agency prior to destruction. The proposed rule allows FDA to provide two separate notices and hearings—one for refusal of admission and one for destruction of a refused drug product—or to combine both notices and hearings into one notice and proceeding. Whether the determinations occur separately or in one combined proceeding, the determination of refusal and the determination regarding destruction of a drug will be made separately by the Agency as the findings are separate and distinct. As with refusal of admission, FDA plans to specify operational details of its process for destruction by guidance, operating guidelines, or similar means. For example, the proposed rule says the notice will specify a time period for introducing testimony regarding destruction, which may be adjusted upon timely request giving reasonable grounds, and FDA could explain the time period it would typically provide. The operational details could also include the format of the notice and which FDA officials are authorized to make the decision as to whether to destroy a particular drug.

As noted, a drug is subject to refusal of admission if, among other reasons, it is or appears to be adulterated, misbranded, or unapproved in violation of section 505 of the FD&C Act. FDA intends to exercise its new authority under section 708 of FDASIA to take the further step of destroying a drug only in situations where, after providing the owner or consignee with the opportunity to introduce testimony, the Agency has made a determination that the drug is adulterated, misbranded, or unapproved in violation of section 505.

III. Effective Date

FDA intends that the effective date of the new requirements will be 30 days after publication of a final rule in the Federal Register. Section 708 of FDASIA states that FDA's new authority under section 801(a) of the FD&C Act shall not take effect until FDA issues a final regulation, and section 708 of FDASIA requires FDA to “publish the final regulation not less than 30 days before the regulation's effective date.”

FDA has examined the impacts of the proposed rule under Executive Order 12866, Executive Order 13563, the Regulatory Flexibility Act (5 U.S.C. 601-612) and the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). Executive Orders 12866 and 13563 direct Agencies to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). The Agency believes that this proposed rule, if finalized, would not be an economically significant regulatory action as defined by Executive Order 12866.

If a rule has a significant economic impact on a substantial number of small businesses, the Regulatory Flexibility Act requires Agencies to analyze regulatory alternatives that would minimize any significant impact of a rule on small entities. As further explained in this section, FDA has determined that this proposed rule, if finalized, would not have a significant economic impact on a substantial number of small entities.

Section 202(a) of the Unfunded Mandates Reform Act of 1995 requires that Agencies prepare a written statement, which includes an assessment of anticipated costs and benefits, before proposing “any rule that includes any Federal mandate that may result in the expenditure by state, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more (adjusted annually for inflation) in any one year.” The current threshold after adjustment for inflation is $141 million, using the most current (2012) Implicit Price Deflator for the Gross Domestic Product. FDA does not expect this proposed rule, if finalized, to result in any 1-year expenditure that would meet or exceed this amount.

The primary public health benefit from adoption of the proposed rule would be the value of the illnesses or deaths avoided because the Agency destroyed a refused drug valued at $2,500 or less (or such higher amount as the Secretary of the Treasury may set by regulation) that posed a public health risk. Additionally, the proposed rule may benefit firms through increases in sales, brand value, and investment in research and development if the destroyed drug is a counterfeit or an otherwise falsified version of an approved drug. The threat of destruction may also have a deterrent effect resulting in a reduction in the amount of violative drugs shipped into the United States in the future. These benefits accrue whenever the Agency's other enforcement tools would not have prevented a violative drug from entering the U.S. market. The current procedure whereby a drug refused admission might be exported does not ensure that the drug would not be imported into the United States in the future.

The estimated primary costs to FDA include the additional costs associated with destroying a refused drug. Our estimates of the primary costs assume that all refused drugs valued at $2,500 or less (or such higher amount as the Secretary of the Treasury may set by regulation) would be destroyed (estimated 12,100 destructions performed each year), that FDA would contract with another Government agency or private firm to destroy the drug, and the notice and hearing process for destruction would likely be combined with the notice and hearing process for refusals. Based on an assumed 12,100 administrative destructions performed each year, the Agency estimates the quantifiable net annual social benefit of the proposed rule, if finalized, to be between $228,000 and $618,000. The present discounted value of the quantifiable net social benefit over 20 years would be in the range of $3,386,000 to $9,169,000 at a 3 percent discount rate and in the range of $2,411,000 to $6,529,000 at a 7 percent discount rate.

FDA has examined the economic implications of the proposed rule as required by the Regulatory Flexibility Act. If a rule will have a significant economic impact on a substantial number of small entities, the Regulatory Flexibility Act requires agencies to analyze regulatory options that would lessen the economic effect of the rule on small entities. In the proposed rule, small entities will bear costs to the extent that they are responsible for the violative product. The number of expected destructions per year along with the very small value per event implies that this burden would not be significant, so we find that this proposed rule, if finalized, would not have a significant economic impact on a substantial number of small entities. This analysis, together with other relevant sections of this document, serves as the Initial Regulatory Flexibility Analysis, as required under the Regulatory Flexibility Act.

The full discussion of economic impacts is available in docket FDA-2014-N-0504 and at http://www.fda.gov/AboutFDA/ReportsManualsForms/Reports/EconomicAnalyses/default.htm# (Ref. 10).

V. Paperwork Reduction Act of 1995

FDA concludes that the requirements contained in this proposed rule are not subject to review by the Office of Management and Budget because they do not constitute a “collection of information” under the Paperwork Reduction Act of 1995 (44 U.S.C. 3518(c)(1)(B)(ii)).

VI. Federalism

FDA has analyzed this proposed rule in accordance with the principles set forth in Executive Order 13132. FDA has determined that the proposed rule, if finalized, would not contain policies that would have substantial direct effects on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. Accordingly, the Agency tentatively concludes that the proposed rule does not contain policies that have federalism implications as defined in the Executive order and, consequently, a federalism summary impact statement is not required.

VII. Environmental Impact

The Agency has determined under 21 CFR 25.30(h) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

VIII. Comments

Interested persons may submit either electronic comments regarding this document to http://www.regulations.gov or written comments to the Division of Dockets Management (see ADDRESSES). It is only necessary to send one set of comments. Identify comments with the docket number found in brackets in the heading of this document. Received comments may be seen in the Division of Dockets Management between 9 a.m. and 4 p.m., Monday through Friday, and will be posted to the docket at http://www.regulations.gov.

IX. References

The following references have been placed on display in the Division of Dockets Management (see ADDRESSES) and may be seen by interested persons between 9 a.m. and 4 p.m., Monday through Friday. (FDA has verified the Web site addresses, but FDA is not responsible for any subsequent changes to the Web sites after this document publishes in the Federal Register.)

2. Revise § 1.94 to read as follows:§ 1.94 Hearing on refusal of admission or destruction.

(a) If it appears that the article may be subject to refusal of admission, or that the article is a drug that may be subject to destruction under section 801(a) of the Federal Food, Drug, and Cosmetic Act, the district director shall give the owner or consignee a written notice to that effect, stating the reasons therefor. The notice shall specify a place and a period of time during which the owner or consignee shall have an opportunity to introduce testimony. Upon timely request giving reasonable grounds therefor, such time and place may be changed. Such testimony shall be confined to matters relevant to the admissibility or destruction of the article, and may be introduced orally or in writing.

(b) If such owner or consignee submits or indicates his or her intention to submit an application for authorization to relabel or perform other action to bring the article into compliance with the Federal Food, Drug, and Cosmetic Act or to render it other than a food, drug, device, or cosmetic, such testimony shall include evidence in support of such application. If such application is not submitted at or prior to the hearing on refusal of admission, the district director shall specify a time limit, reasonable in the light of the circumstances, for filing such application.

(c) If the article is a drug that may be subject to destruction under section 801(a) of the Federal Food, Drug, and Cosmetic Act, the district director may give the owner or consignee a single written notice that provides the notice on refusal of admission and the notice on destruction of an article described in paragraph (a) of this section. The district director may also combine the hearing on refusal of admission with the hearing on destruction of the article described in paragraph (a) of this section into a single proceeding.

The Coast Guard proposes to establish three temporary safety zones during Fourth of July fireworks events on navigable waterways in the vicinity of Stuart, West Palm Beach, and Miami, Florida. These safety zones are necessary to protect the public from hazards associated with launching fireworks over the navigable waters of the United States. Non-participant persons and vessels are prohibited from entering, transiting through, anchoring in, or remaining within any of the safety zones unless authorized by the Captain of the Port Miami or a designated representative.

DATES:

Comments and related material must be received by the Coast Guard on or before June 20, 2014.

Requests for public meetings must be received by the Coast Guard on or before June 5, 2014.

ADDRESSES:

You may submit comments identified by docket number using any one of the following methods:

See the “Public Participation and Request for Comments” portion of the SUPPLEMENTARY INFORMATION section below for further instructions on submitting comments. To avoid duplication, please use only one of these three methods.

FOR FURTHER INFORMATION CONTACT:

If you have questions on this rule, call or email If you have questions on this rule, call or email Petty Officer John K. Jennings, Sector Miami Prevention Department, Coast Guard; telephone (305) 535-4317, email John.K.Jennings@uscg.mil. If you have questions on viewing or submitting material to the docket, call Cheryl Collins, Program Manager, Docket Operations, telephone (202) 366-9826.

SUPPLEMENTARY INFORMATION:Table of AcronymsDHS Department of Homeland SecurityFR Federal RegisterNPRM Notice of Proposed RulemakingA. Public Participation and Request for Comments

We encourage you to participate in this rulemaking by submitting comments and related materials. All comments received will be posted without change to http://www.regulations.gov and will include any personal information you have provided.

1. Submitting Comments

If you submit a comment, please include the docket number for this rulemaking, indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation. You may submit your comments and material online at http://www.regulations.gov, or by fax, mail, or hand delivery, but please use only one of these means. If you submit a comment online, it will be considered received by the Coast Guard when you successfully transmit the comment. If you fax, hand deliver, or mail your comment, it will be considered as having been received by the Coast Guard when it is received at the Docket Management Facility. We recommend that you include your name and a mailing address, an email address, or a telephone number in the body of your document so that we can contact you if we have questions regarding your submission.

To submit your comment online, go to http://www.regulations.gov, type the docket number USCG-2014-0165 in the “SEARCH” box and click “SEARCH.” Click on “Submit a Comment” on the line associated with this rulemaking.

If you submit your comments by mail or hand delivery, submit them in an unbound format, no larger than 81/2 by 11 inches, suitable for copying and electronic filing. If you submit comments by mail and would like to know that they reached the Facility, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material received during the comment period and may change the rule based on your comments.

2. Viewing Comments and Documents

To view comments, as well as documents mentioned in this preamble as being available in the docket, go to http://www.regulations.gov, type the docket number (USCG-2014-0165) in the “SEARCH” box and click “SEARCH.” Click on Open Docket Folder on the line associated with this rulemaking. You may also visit the Docket Management Facility in Room W12-140 on the ground floor of the Department of Transportation West Building, 1200 New Jersey Avenue SE., Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays.

3. Privacy Act

Anyone can search the electronic form of comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review a Privacy Act notice regarding our public dockets in the January 17, 2008, issue of the Federal Register (73 FR 3316).

4. Public Meeting

We do not now plan to hold a public meeting. But you may submit a request for one, using one of the methods specified under ADDRESSES. Please explain why you believe a public meeting would be beneficial. If we determine that one would aid this rulemaking, we will hold one at a time and place announced by a later notice in the Federal Register.

B. Regulatory History and Information

Previously, a rule regarding these maritime events was published in the Code of Federal Regulations at 33 CFR 165. No final rule has been published in regards to these events.

C. Basis and Purpose

The legal basis for the rule is the Coast Guard's authority to establish regulated navigation areas and other limited access areas: 33 U.S.C. 1231; 33 CFR 1.05-1(g), and 160.5; Department of Homeland Security Delegation No. 0170.1. The purpose of the proposed rule is to provide for the safety of life on navigable waters of the United States.

D. Discussion of Proposed Rule

Multiple fireworks display events are planned for Fourth of July celebrations throughout the Captain of the Port Miami Zone. For some events, the fireworks will explode over navigable waters of the United States.

The Coast Guard is establishing three temporary safety zones for fireworks displays on July 4, 2014 on navigable waters of the United States within the Captain of the Port Miami Zone based on the location and/or size of the events. The safety zones are listed below.

The first safety zone is in Stuart, Florida. The safety zone encompasses all waters within a 400 yard radius around the barge from which the fireworks will be launched, located on the St. Lucie River north of City Hall. This safety zone will be enforced from 8:30 p.m. until 9:45 p.m.

The second safety zone is in West Palm Beach, Florida. The safety zone encompasses all waters within a 300 yard radius around the barge from which the fireworks will be launched, located on the Intracoastal Waterway north of the Royal Palm Bridge. This safety zone will be enforced from 9 p.m. until 10:15 p.m.

The third safety zone is located at Bayfront Park, Miami, Florida. The safety zone encompasses all waters within a 400 yard radius around the barge from which the fireworks will be launched, located on the waters of Biscayne Bay east of Bayfront Park. This safety zone will be enforced from 8:30 p.m. until 9:45 p.m.

Non-participant persons and vessels are prohibited from entering, transiting through, anchoring in, or remaining within any of the safety zones unless authorized by the Captain of the Port Miami or a designated representative. Non-participant persons and vessels may request authorization to enter the safety zones by contacting the Captain of the Port Miami by telephone at 305-535-4472, or a designated representative via VHF radio on channel 16. If authorization to enter, transit through, anchor in, or remain within the safety zones is granted by the Captain of the Port Miami or a designated representative, all persons and vessels receiving such authorization must comply with the instructions of the Captain of the Port Miami or a designated representative. The Coast Guard will provide notice of the safety zones by Local Notice to Mariners, Broadcast Notice to Mariners, and on-scene designated representatives.

E. Regulatory Analyses

We developed this proposed rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes or executive orders.

1. Regulatory Planning and Review

This proposed rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, as supplemented by Executive Order 13563, Improving Regulation and Regulatory Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of Executive Order 12866 or under section 1 of Executive Order 13563. The Office of Management and Budget has not reviewed it under those Orders. The economic impact of this proposed rule is not significant for the following reasons: (1) Each safety zone will be enforced for less than two hours; (2) although non-participant persons and vessels will not be able to enter, transit through, anchor in, or remain within the safety zones without authorization from the Captain of the Port Miami or a designated representative, they may operate in the surrounding area during the enforcement period; (3) non-participant persons and vessels may still enter, transit through, anchor in, or remain within the safety zones during the enforcement period if authorized by the Captain of the Port Miami or a designated representative; and (4) the Coast Guard will provide advance notification of the safety zones to the local maritime community by Local Notice to Mariners and Broadcast Notice to Mariners.

2. Impact on Small Entities

The Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered the impact of this proposed rule on small entities. The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule will not have a significant economic impact on a substantial number of small entities.

This proposed rule may affect the following entities, some of which may be small entities: the owners or operators of vessels intending to enter, transit through, anchor in, or remain within any of the safety zones described in this regulation during the respective enforcement period. For the reasons discussed in the Regulatory Planning and Review section above, this proposed rule will not have a significant economic impact on a substantial number of small entities.

If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this proposed rule would have a significant economic impact on it, please submit a comment (see ADDRESSES) explaining why you think it qualifies and how and to what degree this proposed rule would economically affect it.

3. Assistance for Small Entities

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this proposed rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT, above. The Coast Guard will not retaliate against small entities that question or complain about this proposed rule or any policy or action of the Coast Guard.

4. Collection of Information

This proposed rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

5. Federalism

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this proposed rule under that Order and determined that this rule does not have implications for federalism.

6. Protest Activities

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places or vessels.

7. Unfunded Mandates Reform Act

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this proposed rule would not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

8. Taking of Private Property

This proposed rule would not cause a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

We have analyzed this proposed rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and would not create an environmental risk to health or risk to safety that might disproportionately affect children.

11. Indian Tribal Governments

This proposed rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian tribal Governments, because it would not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

12. Energy Effects

This proposed rule is not a “significant energy action” under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use.

13. Technical Standards

This proposed rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

14. Environment

We have analyzed this proposed rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have made a preliminary determination that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This proposed rule involves establishing three temporary safety zones during Fourth of July fireworks events on navigable waterways in the vicinity of Stuart, West Palm Beach, and Miami, Florida. This proposed rule is categorically excluded from further review under paragraph 34(g) of Figure 2-1 of the Commandant Instruction. A prior environmental analysis checklist and a Categorical Exclusion Determination were completed for a regulation (USCG-2013-0429) issued for these same events in 2013. The previously completed environmental analysis checklist and Categorical Exclusion Determination can be found in the docket folder for USCG-2013-0429 at www.regulations.gov. Because this proposed rule is substantially unchanged from the regulation issued when the prior determination was made and there have been no new developments relevant to that determination, we have not completed a new environmental analysis checklist and Categorical Exclusion Determination for this proposed rule. We have made a preliminary determination this proposed rule will not have any of the following: Significant cumulative impacts on the human environment; substantial controversy or substantial change to existing environmental conditions; or inconsistencies with any Federal, state, or local laws or administrative determinations relating to the environment. We seek any comments or information that may lead to the discovery of a significant environmental impact from this proposed rule.

2. Add a temporary § 165.T07-0165 to read as follows:§ 165.T07-0165 Safety Zones; July 4th Fireworks Displays within the Captain of the Port Miami Zone, FL.

(a) Regulated Areas. The following regulated areas are safety zones. All coordinates are North American Datum 1983.

(1) Stuart, FL. All waters within a 400 yard radius around the barge from which the fireworks will be launched, located on the St. Lucie River north of City Hall at approximate position 27°12′09″ N, 80°14′20″ W.

(2) West Palm Beach, FL. All waters within a 300 yard radius around the barge from which the fireworks will be launched, located on the Intracoastal Waterway north of the Royal Palm Bridge at approximate position 26°42′36″ N, 80°02′45″ W.

(3) Miami, FL. All waters within a 400 yard radius around the barge from which the fireworks will be launched, located on the waters of Biscayne Bay east of Bayfront Park at approximate position 25°46′30″ N, 80°10′56″ W.

(b) Definition. The term “designated representative” means Coast Guard Patrol Commanders, including Coast Guard coxswains, petty officers, and other officers operating Coast Guard vessels, and Federal, state, and local officers designated by or assisting the Captain of the Port Miami in the enforcement of the regulated areas.

(c) Regulations.

(1) All non-participant persons and vessels are prohibited from entering, transiting through, anchoring in or remaining within the safety zones unless authorized by the Captain of the Port Miami or a designated representative.

(2) Non-participant persons and vessels desiring to enter, transit through, anchor in, or remain within a regulated area may contact the Captain of the Port Miami by telephone at 305-535-4472, or a designated representative via VHF radio on channel 16. If authorization to enter, transit through, anchor in, or remain within a regulated area is granted by the Captain of the Port Miami or a designated representative, all persons and vessels receiving such authorization must comply with the instructions of the Captain of the Port Miami or a designated representative.

(3) The Coast Guard will provide notice of the safety zones by Local Notice to Mariners, Broadcast Notice to Mariners, and on-scene designated representatives.

(d) Effective Date. This rule is effective on July 4, 2014. This rule will be enforced from 8:30 p.m. until 10:15 p.m. on July 4, 2014.

On March 7, 2014, the Administrator of the World Trade Center (WTC) Health Program received a petition (Petition 004) to add “heart attack,” which the Administrator has interpreted to mean “cardiovascular disease,” to the List of WTC-Related Health Conditions (List). Upon reviewing the scientific and medical literature, including information provided by the petitioner, the Administrator has determined that the available evidence does not have the potential to provide a basis for a decision on whether to add cardiovascular disease to the List. The Administrator finds that insufficient evidence exists to request a recommendation of the WTC Health Program Scientific/Technical Advisory Committee (STAC), to publish a proposed rule, or to publish a determination not to publish a proposed rule.

DATES:

The Administrator of the WTC Health Program is denying this petition for the addition of a health condition as of May 6, 2014.

Title I of the James Zadroga 9/11 Health and Compensation Act of 2010 (Pub. L. 111-347), amended the Public Health Service Act (PHS Act) to add Title XXXIII 1 establishing the WTC Health Program within the Department of Health and Human Services (HHS). The WTC Health Program provides medical monitoring and treatment benefits to eligible firefighters and related personnel, law enforcement officers, and rescue, recovery, and cleanup workers (responders) who responded to the September 11, 2001, terrorist attacks in New York City, at the Pentagon, and in Shanksville, Pennsylvania, and to eligible persons (survivors) who were present in the dust or dust cloud on September 11, 2001 or who worked, resided, or attended school, childcare, or adult daycare in the New York City disaster area.

1 Title XXXIII of the PHS Act is codified at 42 U.S.C. 300mm to 300mm-61. Those portions of the Zadroga Act found in Titles II and III of Public Law 111-347 do not pertain to the WTC Health Program and are codified elsewhere.

All references to the Administrator of the WTC Health Program (Administrator) in this notice mean the Director of the National Institute for Occupational Safety and Health (NIOSH) or his or her designee.

Pursuant to section 3312(a)(6)(B) of the PHS Act, interested parties may petition the Administrator to add a health condition to the List in 42 CFR 88.1. Within 60 calendar days after receipt of a petition to add a condition to the List, the Administrator must take one of the following four actions described in section 3312(a)(6)(B) and 42 CFR 88.17: (i) Request a recommendation of the STAC; (ii) publish a proposed rule in the Federal Register to add such health condition; (iii) publish in the Federal Register the Administrator's determination not to publish such a proposed rule and the basis for such determination; or (iv) publish in the Federal Register a determination that insufficient evidence exists to take action under (i) through (iii) above.

B. Petition 004

On March 7, 2014, the Administrator received a petition to add “heart attack” to the List (Petition 004).2 The petition was submitted by a WTC Health Program member who responded to the September 11, 2001 terrorist attacks in New York City. The petitioner indicated that he has been diagnosed with a number of WTC-related health conditions, and has suffered a heart attack. Also included in his petition was a press release published by the New York City Department of Health and Mental Hygiene describing a WTC Health Registry study authored by Hannah T. Jordan et al. and published in the Journal of the American Heart Association on October 24, 2013.3

The Administrator has established a methodology for evaluating whether to add non-cancer health conditions to the List of WTC-Related Health Conditions.4 A health condition may be added to the List if published, peer-reviewed epidemiologic evidence provides substantial support for a causal relationship between 9/11 exposures and the health condition in 9/11-exposed populations.5 If the epidemiologic evidence provides modest support for a causal relationship between 9/11 exposures and the health condition, the Administrator may then evaluate studies of associations between the health condition and 9/11 agents in similarly-exposed populations.6 If that additional assessment establishes substantial support for a causal relationship between a 9/11 agent or agents and the health condition, the health condition may be added to the List.

4 This methodology, “Policy and Procedures for Adding Non-Cancer Conditions to the List of WTC-Related Health Conditions,” is available on the WTC Health Program Web site, at http://www.cdc.gov/wtc/policies.html.

5 The substantial evidence standard is met when the Program assesses all of the available, relevant information and determines with high confidence that the evidence supports its findings regarding a causal association between the 9/11 exposure(s) and the health condition.

6 The modest evidence standard is met when the Program assesses all of the available, relevant information and determines with moderate confidence that the evidence supports its findings regarding a causal association between the 9/11 exposure(s) and the health condition.

In accordance with section 3312(a)(6)(B) of the PHS Act, 42 CFR 88.17, and the methodology for the addition of non-cancer health conditions, the Administrator reviewed the evidence presented in Petition 004. Although the petitioner requested the addition of “heart attack,” the Administrator determined that the more appropriate health condition is “cardiovascular disease,” which includes heart attack, acute or chronic coronary artery disease, cardiac arrhythmia, angina, and any other heart condition. The Administrator then selected a team under the direction of the WTC Health Program Associate Director for Science (ADS) to perform a systematic literature search and provide input on whether the available scientific and medical information has the potential to provide a basis for a decision on whether to add the health condition to the List. The ADS conducted a search of the existing scientific/medical literature for epidemiologic evidence of a causal relationship between 9/11 exposures and cardiovascular disease. Among the studies identified by the literature search, four were found to be published, peer-reviewed epidemiologic studies of 9/11-exposed populations.7 However, when reviewed by the ADS for relevance, quantity, and quality, each of the four published, peer-reviewed epidemiologic studies of 9/11-exposed populations were found to have significant limitations, both individually and in combination. Limitations of the four studies included selection, recall, and confounding bias 8; poor generalizability among all exposed groups; and lack of consistency among the associations reported between 9/11 exposures and cardiovascular disease between studies. Thus, the ADS concluded that the available information did not have the potential to form the basis for a decision on whether to propose adding cardiovascular disease to the List.

8 In this case, “selection bias” refers to study populations that include individuals who were self-identified as heart patients but whose reported illness was not independently verified; “recall bias” refers to the inaccuracies or incompleteness inherent in the self-reporting of 9/11-related health conditions years after the event; and “confounding bias” refers to the existence of risk factors for cardiovascular disease that have not been accounted for by study authors.

The findings described above led the Administrator to determine that insufficient evidence exists to take further action, including either proposing the addition of cardiovascular disease to the List (pursuant to PHS Act, section 3312(a)(6)(B)(ii) and 42 CFR 88.17(a)(2)(ii)) or publishing a determination not to publish a proposed rule in the Federal Register (pursuant to PHS Act, section 3312(a)(6)(B)(iii) and 42 CFR 88.17(a)(2)(iii)). The Administrator has also determined that requesting a recommendation from the STAC (pursuant to PHS Act, section 3312(a)(6)(B)(i) and 42 CFR 88.17(a)(2)(i)) is unwarranted.

For the reasons discussed above, the request made in Petition 004 to add cardiovascular disease to the List of WTC-Related Health Conditions is denied.

This proposed rule would update the payment rates used under the prospective payment system (PPS) for skilled nursing facilities (SNFs) for fiscal year (FY) 2015. In addition, it includes a proposal to adopt the most recent Office of Management and Budget (OMB) statistical area delineations to identify a facility's urban or rural status for the purpose of determining which set of rate tables would apply to the facility and to determine the SNF PPS wage index including a proposed one-year transition with a blended wage index for all providers for FY 2015. It also includes a discussion of the SNF therapy payment research currently underway within CMS. This proposed rule also proposes a revision to policies related to the Change of Therapy (COT) Other Medicare Required Assessment (OMRA). This proposed rule includes a discussion of a provision related to the Affordable Care Act involving Civil Money Penalties. Finally, this proposed rule includes a discussion of observed trends related to therapy utilization among SNF providers and a discussion of accelerating health information exchange in SNFs.

DATES:

To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on June 30, 2014.

ADDRESSES:

In commenting, please refer to file code CMS-1605-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of four ways (please choose only one of the ways listed):

1. Electronically. You may submit electronic comments on this regulation to http://www.regulations.gov. Within the search bar, enter the Regulation Identifier Number associated with this regulation, 0938-AS07, and then click on the “Comment Now” box.

(Because access to the interior of the Hubert H. Humphrey Building is not readily available to persons without Federal Government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.)

If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members.

Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.

For information on viewing public comments, see the beginning of the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:Penny Gershman, (410) 786-6643, for information related to clinical issues.John Kane, (410) 786-0557, for information related to the development of the payment rates and case-mix indexes.Kia Sidbury, (410) 786-7816, for information related to the wage index.Karen Tritz, (410) 786-8021, for information related to Civil Money Penalties.Bill Ullman, (410) 786-5667, for information related to level of care determinations, consolidated billing, and general information.SUPPLEMENTARY INFORMATION:

Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to view public comments.

Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

Availability of Certain Tables Exclusively Through the Internet on the CMS Web Site

In the past, tables setting forth the Wage Index for Urban Areas Based on CBSA Labor Market Areas and the Wage Index Based on CBSA Labor Market Areas for Rural Areas were published in the Federal Register as an Addendum to the annual SNF PPS rulemaking (that is, the SNF PPS proposed and final rules or, when applicable, the current update notice). However, as finalized in the FY 2014 SNF PPS final rule (78 FR 47936, 47964), beginning in FY 2015, these wage index tables are no longer published in the Federal Register. Instead, these tables will be available exclusively through the Internet. The wage index tables for this proposed rule are available exclusively through the Internet on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html.

Readers who experience any problems accessing any of the tables that are posted on the CMS Web sites identified above should contact Kia Sidbury at (410) 786-7816.

To assist readers in referencing sections contained in this document, we are providing the following Table of Contents.

This proposed rule would update the SNF prospective payment rates for FY 2015 as required under section 1888(e)(4)(E) of the Act. It would also respond to section 1888(e)(4)(H) of the Act, which requires the Secretary to “provide for publication in the Federal Register” before the August 1 that precedes the start of each fiscal year, certain specified information relating to the payment update (see section II.C.).

B. Summary of Major Provisions

In accordance with sections 1888(e)(4)(E)(ii)(IV) and 1888(e)(5) of the Act, the federal rates in this proposed rule would reflect an update to the rates that we published in the SNF PPS final rule for FY 2014 (78 FR 47936) which reflects the SNF market basket index, adjusted by the forecast error correction, if applicable, and the multifactor productivity adjustment for FY 2015.

C. Summary of Cost and BenefitsProvision descriptionTotal transfersProposed FY 2015 SNF PPS payment rate updateThe overall economic impact of this proposed rule would be an estimated increase of $750 million in aggregate payments to SNFs during FY 2015.II. BackgroundA. Statutory Basis and Scope

As amended by section 4432 of the Balanced Budget Act of 1997 (BBA, Pub. L. 105-33, enacted on August 5, 1997), section 1888(e) of the Act provides for the implementation of a PPS for SNFs. This methodology uses prospective, case-mix adjusted per diem payment rates applicable to all covered SNF services defined in section 1888(e)(2)(A) of the Act. The SNF PPS is effective for cost reporting periods beginning on or after July 1, 1998, and covers all costs of furnishing covered SNF services (routine, ancillary, and capital-related costs) other than costs associated with approved educational activities and bad debts. Under section 1888(e)(2)(A)(i) of the Act, covered SNF services include post-hospital extended care services for which benefits are provided under Part A, as well as those items and services (other than a small number of excluded services, such as physician services) for which payment may otherwise be made under Part B and which are furnished to Medicare beneficiaries who are residents in a SNF during a covered Part A stay. A comprehensive discussion of these provisions appears in the May 12, 1998 interim final rule (63 FR 26252). In addition, a detailed discussion of the legislative history of the SNF PPS is available online at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/Downloads/Legislative_History_07302013.pdf.

As noted in section I.F. of that legislative history, on March 23, 2010, the Patient Protection and Affordable Care Act (Pub. L. 111-148) was enacted. Then, the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152, enacted on March 30, 2010) amended certain provisions of Pub. L. 111-148 and certain sections of the Social Security Act and, in certain instances, included “freestanding” provisions. In this proposed rule, Public Law 111-148 and Public Law 111-152 are collectively referred to as the “Affordable Care Act.” In section V. of this proposed rule, we include discussions of one specific provision related to the Affordable Care Act involving Civil Money Penalties (as discussed in section V.D.).

B. Initial Transition

Under sections 1888(e)(1)(A) and 1888(e)(11) of the Act, the SNF PPS included an initial, three-phase transition that blended a facility-specific rate (reflecting the individual facility's historical cost experience) with the federal case-mix adjusted rate. The transition extended through the facility's first three cost reporting periods under the PPS, up to and including the one that began in FY 2001. Thus, the SNF PPS is no longer operating under the transition, as all facilities have been paid at the full federal rate effective with cost reporting periods beginning in FY 2002. As we now base payments for SNFs entirely on the adjusted federal per diem rates, we no longer include adjustment factors under the transition related to facility-specific rates for the upcoming FY.

C. Required Annual Rate Updates

Section 1888(e)(4)(E) of the Act requires the SNF PPS payment rates to be updated annually. The most recent annual update occurred in a final rule that set forth updates to the SNF PPS payment rates for FY 2014 (78 FR 47936, August 6, 2013). We subsequently published two correction notices (78 FR 61202, October 3, 2013, and 79 FR 63, January 2, 2014) with respect to that final rule, as well as a notice that made corrections to the January 2, 2014 correction notice (79 FR 1742, January 10, 2014).

Section 1888(e)(4)(H) of the Act specifies that we provide for publication annually in the Federal Register of the following:

• The unadjusted federal per diem rates to be applied to days of covered SNF services furnished during the upcoming FY.

• The case-mix classification system to be applied for these services during the upcoming FY.

• The factors to be applied in making the area wage adjustment for these services.

Along with other revisions discussed later in this preamble, this proposed rule would provide the required annual updates to the per diem payment rates for SNFs for FY 2015.

Under section 1888(e)(4) of the Act, the SNF PPS uses per diem federal payment rates based on mean SNF costs in a base year (FY 1995) updated for inflation to the first effective period of the PPS. We developed the federal payment rates using allowable costs from hospital-based and freestanding SNF cost reports for reporting periods beginning in FY 1995. The data used in developing the federal rates also incorporated a “Part B add-on,” which is an estimate of the amounts that, prior to the SNF PPS, would have been payable under Part B for covered SNF services furnished to individuals during the course of a covered Part A stay in a SNF.

In developing the rates for the initial period, we updated costs to the first effective year of the PPS (the 15-month period beginning July 1, 1998) using a SNF market basket index, and then standardized for geographic variations in wages and for the costs of facility differences in case mix. In compiling the database used to compute the federal payment rates, we excluded those providers that received new provider exemptions from the routine cost limits, as well as costs related to payments for exceptions to the routine cost limits. Using the formula that the BBA prescribed, we set the federal rates at a level equal to the weighted mean of freestanding costs plus 50 percent of the difference between the freestanding mean and weighted mean of all SNF costs (hospital-based and freestanding) combined. We computed and applied separately the payment rates for facilities located in urban and rural areas, and adjusted the portion of the federal rate attributable to wage-related costs by a wage index to reflect geographic variations in wages.

B. SNF Market Basket Update1. SNF Market Basket Index

Section 1888(e)(5)(A) of the Act requires us to establish a SNF market basket index that reflects changes over time in the prices of an appropriate mix of goods and services included in covered SNF services. Accordingly, we have developed a SNF market basket index that encompasses the most commonly used cost categories for SNF routine services, ancillary services, and capital-related expenses. We use the SNF market basket index, adjusted in the manner described below, to update the federal rates on an annual basis. In the SNF PPS final rule for FY 2014 (78 FR 47939 through 47946), we revised and rebased the market basket, which included updating the base year from FY 2004 to FY 2010.

For the FY 2015 proposed rule, the FY 2010-based SNF market basket growth rate is estimated to be 2.4 percent, which is based on the IHS Global Insight, Inc. (IGI) first quarter 2014 forecast with historical data through fourth quarter 2013. In section III.B.5. of this proposed rule, we discuss the specific application of this adjustment to the forthcoming annual update of the SNF PPS payment rates.

2. Use of the SNF Market Basket Percentage

Section 1888(e)(5)(B) of the Act defines the SNF market basket percentage as the percentage change in the SNF market basket index from the midpoint of the previous FY to the midpoint of the current FY. For the federal rates set forth in this proposed rule, we use the percentage change in the SNF market basket index to compute the update factor for FY 2015. This is based on the IGI first quarter 2014 forecast (with historical data through the fourth quarter 2013) of the FY 2015 percentage increase in the FY 2010-based SNF market basket index for routine, ancillary, and capital-related expenses, which is used to compute the update factor in this proposed rule. As discussed in sections III.B.3. and III.B.4. of this proposed rule, this market basket percentage change would be reduced by the forecast error correction (as described in § 413.337(d)(2)) if applicable, and by the multifactor productivity adjustment as required by section 1888(e)(5)(B)(ii) of the Act. Finally, as discussed in section II.B. of this proposed rule, we no longer compute update factors to adjust a facility-specific portion of the SNF PPS rates, because the initial three-phase transition period from facility-specific to full federal rates that started with cost reporting periods beginning in July 1998 has expired.

3. Forecast Error Adjustment

As discussed in the June 10, 2003 supplemental proposed rule (68 FR 34768) and finalized in the August 4, 2003, final rule (68 FR 46057 through 46059), the regulations at § 413.337(d)(2) provide for an adjustment to account for market basket forecast error. The initial adjustment for market basket forecast error applied to the update of the FY 2003 rate for FY 2004, and took into account the cumulative forecast error for the period from FY 2000 through FY 2002, resulting in an increase of 3.26 percent to the FY 2004 update. Subsequent adjustments in succeeding FYs take into account the forecast error from the most recently available FY for which there is final data, and apply the difference between the forecasted and actual change in the market basket when the difference exceeds a specified threshold. We originally used a 0.25 percentage point threshold for this purpose; however, for the reasons specified in the FY 2008 SNF PPS final rule (72 FR 43425, August 3, 2007), we adopted a 0.5 percentage point threshold effective for FY 2008 and subsequent fiscal years. As we stated in the final rule for FY 2004 that first issued the market basket forecast error adjustment (68 FR 46058, August 4, 2003), the adjustment will “. . . reflect both upward and downward adjustments, as appropriate.”

For FY 2013 (the most recently available FY for which there is final data), the estimated increase in the market basket index was 2.5 percentage points, while the actual increase for FY 2013 was 2.2 percentage points, resulting in the actual increase being 0.3 percentage point lower than the estimated increase. Accordingly, as the difference between the estimated and actual amount of change in the market basket index does not exceed the 0.5 percentage point threshold, the payment rates for FY 2015 do not include a forecast error adjustment. Table 1 shows the forecasted and actual market basket amounts for FY 2013.

Table 1—Difference Between the Forecasted and Actual Market Basket Increases for FY 2013IndexForecasted

FY 2013

increase *

Actual

FY 2013

increase **

FY 2013

difference

SNF2.52.2−0.3* Published in Federal Register; based on second quarter 2012 IGI forecast (2004-based index).** Based on the first quarter 2014 IHS Global Insight forecast, with historical data through the fourth quarter 2013 (2004-based index).4. Multifactor Productivity Adjustment

Section 3401(b) of the Affordable Care Act requires that, in FY 2012 (and in subsequent FYs), the market basket percentage under the SNF payment system as described in section 1888(e)(5)(B)(i) of the Act is to be reduced annually by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. Section 1886(b)(3)(B)(xi)(II) of the Act, added by section 3401(a) of the Affordable Care Act, sets forth the definition of this productivity adjustment. The statute defines the productivity adjustment to be equal to “the 10-year moving average of changes in annual economy-wide private nonfarm business multi-factor productivity (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, year, cost-reporting period, or other annual period)” (the MFP adjustment). The Bureau of Labor Statistics (BLS) is the agency that publishes the official measure of private nonfarm business multifactor productivity (MFP). Please see http://www.bls.gov/mfp to obtain the BLS historical published MFP data.

The projection of MFP is currently produced by IGI, an economic forecasting firm. To generate a forecast of MFP, IGI replicated the MFP measure calculated by the BLS, using a series of proxy variables derived from IGI's U.S. macroeconomic models. This process is described in greater detail in section III.F.3. of the FY 2012 SNF PPS final rule (76 FR 48527 through 48529).

According to section 1888(e)(5)(A) of the Act, the Secretary “shall establish a skilled nursing facility market basket index that reflects changes over time in the prices of an appropriate mix of goods and services included in covered skilled nursing facility services.” Section 1888(e)(5)(B)(ii) of the Act, added by section 3401(b) of the Affordable Care Act, requires that for FY 2012 and each subsequent FY, after determining the market basket percentage described in section 1888(e)(5)(B)(i) of the Act, “the Secretary shall reduce such percentage by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II)” (which we refer to as the MFP adjustment). Section 1888(e)(5)(B)(ii) of the Act further states that the reduction of the market basket percentage by the MFP adjustment may result in the market basket percentage being less than zero for a FY, and may result in payment rates under section 1888(e) of the Act for a FY being less than such payment rates for the preceding FY. Thus, if the application of the MFP adjustment to the market basket percentage calculated under section 1888(e)(5)(B)(i) of the Act results in an MFP-adjusted market basket percentage that is less than zero, then the annual update to the unadjusted federal per diem rates under section 1888(e)(4)(E)(ii) of the Act would be negative, and such rates would decrease relative to the prior FY.

For the FY 2015 update, the MFP adjustment is calculated as the 10-year moving average of changes in MFP for the period ending September 30, 2015, which is 0.4 percent. Consistent with section 1888(e)(5)(B)(i) of the Act and § 413.337(d)(2) of the regulations, the market basket percentage for FY 2015 for the SNF PPS is based on IGI's first quarter 2014 forecast of the SNF market basket update, and is estimated to be 2.4 percent. In accordance with section 1888(e)(5)(B)(ii) of the Act (as added by section 3401(b) of the Affordable Care Act) and § 413.337(d)(3), this market basket percentage is then reduced by the MFP adjustment (the 10-year moving average of changes in MFP for the period ending September 30, 2015) of 0.4 percent, which is calculated as described above and based on IGI's first quarter 2014 forecast. The resulting MFP-adjusted SNF market basket update is equal to 2.0 percent, or 2.4 percent less 0.4 percentage point.

5. Market Basket Update Factor for FY 2015

Sections 1888(e)(4)(E)(ii)(IV) and 1888(e)(5)(i) of the Act require that the update factor used to establish the FY 2015 unadjusted federal rates be at a level equal to the market basket index percentage change. Accordingly, we determined the total growth from the average market basket level for the period of October 1, 2013 through September 30, 2014 to the average market basket level for the period of October 1, 2014 through September 30, 2015. This process yields an update factor of 2.4 percent. As further explained in section III.B.3. of this proposed rule, as applicable, we adjust the market basket update factor by the forecast error from the most recently available FY for which there is final data and apply this adjustment whenever the difference between the forecasted and actual percentage change in the market basket exceeds a 0.5 percentage point threshold. Since the difference between the forecasted FY 2013 SNF market basket percentage change and the actual FY 2013 SNF market basket percentage change (FY 2013 is the most recently available FY for which there is final data) does not exceed 0.5 percentage point, the FY 2015 market basket of 2.4 percent would not be adjusted by the applicable difference. In addition, for FY 2015, section 1888(e)(5)(B)(ii) of the Act requires us to reduce the market basket percentage by the MFP adjustment (the 10-year moving average of changes in MFP for the period ending September 30, 2015) of 0.4 percent, as described in section III.B.4. of this proposed rule. The resulting MFP-adjusted SNF market basket update would be equal to 2.0 percent, or 2.4 percent less 0.4 percentage point. We note that if more recent data become available (for example, a more recent estimate of the SNF market basket, MFP adjustment, and/or FY 2004-based SNF market basket used for the forecast error calculation), we would use such data, if appropriate, to determine the FY 2015 SNF market basket update, FY 2015 labor-related share relative importance, and MFP adjustment in the FY 2015 SNF PPS final rule. We used the SNF market basket, adjusted as described above, to adjust each per diem component of the federal rates forward to reflect the change in the average prices for FY 2015 from average prices for FY 2014. We would further adjust the rates by a wage index budget neutrality factor, described later in this section. Tables 2 and 3 reflect the updated components of the unadjusted federal rates for FY 2015, prior to adjustment for case-mix.

While we would continue to compute and apply separate federal per diem rates for SNFs located in urban and rural areas as we have in the past, we propose to use the revised OMB statistical area delineations discussed in Section V.A below to identify a facility's urban or rural status for the purpose of determining which set of rate tables would apply to a facility beginning on October 1, 2014. We believe that the most current OMB delineations more accurately reflect the contemporary urban and rural nature of areas across the country, and that use of such delineations would allow us to more accurately determine the appropriate rate tables to apply under the SNF PPS. Thus, we believe it is appropriate to use the most current OMB delineations for this purpose, in order to enhance the accuracy of payments under the SNF PPS. We invite comments on this proposal.

Under section 1888(e)(4)(G)(i) of the Act, the federal rate also incorporates an adjustment to account for facility case-mix, using a classification system that accounts for the relative resource utilization of different patient types. The statute specifies that the adjustment is to reflect both a resident classification system that the Secretary establishes to account for the relative resource use of different patient types, as well as resident assessment data and other data that the Secretary considers appropriate. In the interim final rule with comment period that initially implemented the SNF PPS (63 FR 26252, May 12, 1998), we developed the RUG-III case-mix classification system, which tied the amount of payment to resident resource use in combination with resident characteristic information. Staff time measurement (STM) studies conducted in 1990, 1995, and 1997 provided information on resource use (time spent by staff members on residents) and resident characteristics that enabled us not only to establish RUG-III, but also to create case-mix indexes (CMIs). The original RUG-III grouper logic was based on clinical data collected in 1990, 1995, and 1997. As discussed in the SNF PPS proposed rule for FY 2010 (74 FR 22208), we subsequently conducted a multi-year data collection and analysis under the Staff Time and Resource Intensity Verification (STRIVE) project to update the case-mix classification system for FY 2011. The resulting Resource Utilization Groups, Version 4 (RUG-IV) case-mix classification system reflected the data collected in 2006-2007 during the STRIVE project, and was finalized in the FY 2010 SNF PPS final rule (74 FR 40288) to take effect in FY 2011 concurrently with an updated new resident assessment instrument, version 3.0 of the Minimum Data Set (MDS 3.0), which collects the clinical data used for case-mix classification under RUG-IV.

We note that case-mix classification is based, in part, on the beneficiary's need for skilled nursing care and therapy services. The case-mix classification system uses clinical data from the MDS to assign a case-mix group to each patient that is then used to calculate a per diem payment under the SNF PPS. As discussed in section IV.A. of this proposed rule, the clinical orientation of the case-mix classification system supports the SNF PPS's use of an administrative presumption that considers a beneficiary's initial case-mix classification to assist in making certain SNF level of care determinations. Further, because the MDS is used as a basis for payment, as well as a clinical assessment, we have provided extensive training on proper coding and the time frames for MDS completion in our Resident Assessment Instrument (RAI) Manual. For an MDS to be considered valid for use in determining payment, the MDS assessment must be completed in compliance with the instructions in the RAI Manual in effect at the time the assessment is completed. For payment and quality monitoring purposes, the RAI Manual consists of both the Manual instructions and the interpretive guidance and policy clarifications posted on the appropriate MDS Web site at http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/NursingHomeQualityInits/MDS30RAIManual.html.

In addition, we note that section 511 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA, Pub. L. 108-173) amended section 1888(e)(12) of the Act to provide for a temporary increase of 128 percent in the PPS per diem payment for any SNF residents with Acquired Immune Deficiency Syndrome (AIDS), effective with services furnished on or after October 1, 2004. This special add-on for SNF residents with AIDS was to remain in effect until “. . . the Secretary certifies that there is an appropriate adjustment in the case mix . . . to compensate for the increased costs associated with [such] residents . . . .” The add-on for SNF residents with AIDS is also discussed in Program Transmittal #160 (Change Request #3291), issued on April 30, 2004, which is available online at www.cms.gov/transmittals/downloads/r160cp.pdf. In the SNF PPS final rule for FY 2010 (74 FR 40288), we did not address the certification of the add-on for SNF residents with AIDS in that final rule's implementation of the case-mix refinements for RUG-IV, thus allowing the add-on payment required by section 511 of the MMA to remain in effect. For the limited number of SNF residents that qualify for this add-on, there is a significant increase in payments. For example, using FY 2012 data, we identified fewer than 4,355 SNF residents with a diagnosis code of 042 (Human Immunodeficiency Virus (HIV) Infection). For FY 2015, an urban facility with a resident with AIDS in RUG-IV group “HC2” would have a case-mix adjusted per diem payment of $422.77 (see Table 4) before the application of the MMA adjustment. After an increase of 128 percent, this urban facility would receive a case-mix adjusted per diem payment of approximately $963.92.

Currently, we use the International Classification of Diseases, 9th revision, Clinical Modification (ICD-9-CM) code 042 to identify those residents for whom it is appropriate to apply the AIDS add-on established by section 511 of the MMA. In this context, we note that the Department published a final rule in the September 5, 2012 Federal Register (77 FR 54664) which requires us to stop using ICD-9-CM on September 30, 2014, and begin using the International Classification of Diseases, 10th revision, Clinical Modification (ICD-10-CM), on October 1, 2014. Regarding the above-referenced ICD-9-CM diagnosis code of 042, in the FY 2014 SNF PPS proposed rule (78 FR 26444, May 6, 2013), we proposed to transition to the equivalent ICD-10-CM diagnosis code of B20 upon the overall conversion to ICD-10-CM on October 1, 2014, and we subsequently finalized that proposal in the FY 2014 SNF PPS final rule (78 FR 47951 through 47952).

However, on April 1, 2014, the Protecting Access to Medicare Act of 2014 (PAMA) (Pub. L. No. 113-93) was enacted. Section 212 of PAMA, titled “Delay in Transition from ICD-9 to ICD-10 Code Sets,” provides that “[t]he Secretary of Health and Human Services may not, prior to October 1, 2015, adopt ICD-10 code sets as the standard for code sets under section 1173(c) of the Social Security Act (42 U.S.C. 1320d-2(c)) and section 162.1002 of title 45, Code of Federal Regulations.” As of now, the Secretary has not implemented this provision under HIPAA. In light of PAMA, the effective date of the change from ICD-9-CM code 042 to ICD-10-CM code B20 for purposes of applying the AIDS add-on would be the date when ICD-10 becomes the required medical data code set for use on Medicare SNF claims. Until that time, we would continue to use ICD-9-CM code 042 for this purpose.

Under section 1888(e)(4)(H), each update of the payment rates must include the case-mix classification methodology applicable for the upcoming FY. The payment rates set forth in this proposed rule reflect the use of the RUG-IV case-mix classification system from October 1, 2014, through September 30, 2015. We list the proposed case-mix adjusted RUG-IV payment rates, provided separately for urban and rural SNFs, in Tables 4 and 5 with corresponding case-mix values. As discussed above, facilities would use the proposed revised OMB delineations in order to identify their urban or rural status for the purpose of determining which set of rate tables would apply to them beginning on October 1, 2014. These tables do not reflect the add-on for SNF residents with AIDS enacted by section 511 of the MMA, which we apply only after making all other adjustments (such as wage index and case-mix).

Section 1888(e)(4)(G)(ii) of the Act requires that we adjust the federal rates to account for differences in area wage levels, using a wage index that the Secretary determines appropriate. Since the inception of the SNF PPS, we have used hospital inpatient wage data in developing a wage index to be applied to SNFs. We propose to continue this practice for FY 2015, as we continue to believe that in the absence of SNF-specific wage data, using the hospital inpatient wage index data is appropriate and reasonable for the SNF PPS. As explained in the update notice for FY 2005 (69 FR 45786), the SNF PPS does not use the hospital area wage index's occupational mix adjustment, as this adjustment serves specifically to define the occupational categories more clearly in a hospital setting; moreover, the collection of the occupational wage data also excludes any wage data related to SNFs. Therefore, we believe that using the updated wage data exclusive of the occupational mix adjustment continues to be appropriate for SNF payments. For FY 2015, the updated wage data are for hospital cost reporting periods beginning on or after October 1, 2010 and before October 1, 2011 (FY 2011 cost report data).

We note that section 315 of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554, enacted on December 21, 2000) authorized us to establish a geographic reclassification procedure that is specific to SNFs, but only after collecting the data necessary to establish a SNF wage index that is based on wage data from nursing homes. However, to date, this has proven to be unfeasible due to the volatility of existing SNF wage data and the significant amount of resources that would be required to improve the quality of that data.

In addition, we propose to continue to use the same methodology discussed in the SNF PPS final rule for FY 2008 (72 FR 43423) to address those geographic areas in which there are no hospitals, and thus, no hospital wage index data on which to base the calculation of the FY 2015 SNF PPS wage index. For rural geographic areas that do not have hospitals, and therefore, lack hospital wage data on which to base an area wage adjustment, we would use the average wage index from all contiguous Core-Based Statistical Areas (CBSAs) as a reasonable proxy. For FY 2015, there are no rural geographic areas that do not have hospitals, and thus, this methodology would not be applied. For rural Puerto Rico, we would not apply this methodology due to the distinct economic circumstances that exist there (for example, due to the close proximity to one another of almost all of Puerto Rico's various urban and non-urban areas, this methodology would produce a wage index for rural Puerto Rico that is higher than that in half of its urban areas); instead, we would continue to use the most recent wage index previously available for that area. For urban areas without specific hospital wage index data, we would use the average wage indexes of all of the urban areas within the state to serve as a reasonable proxy for the wage index of that urban CBSA. For FY 2015, the only urban area without wage index data available is CBSA 25980, Hinesville-Fort Stewart, GA.

Once calculated, we would apply the wage index adjustment to the labor-related portion of the federal rate. Each year, we calculate a revised labor-related share, based on the relative importance of labor-related cost categories (that is, those cost categories that are sensitive to local area wage costs) in the input price index. In the SNF PPS final rule for FY 2014 (78 FR 47944 through 47946), we finalized a proposal to revise the labor-related share to reflect the relative importance of the revised FY 2010-based SNF market basket cost weights for the following cost categories: wages and salaries; employee benefits; the labor-related portion of nonmedical professional fees; administrative and facilities support services; all other—labor-related services; and a proportion of capital-related expenses.

We calculate the labor-related relative importance from the SNF market basket, and it approximates the labor-related portion of the total costs after taking into account historical and projected price changes between the base year and FY 2015. The price proxies that move the different cost categories in the market basket do not necessarily change at the same rate, and the relative importance captures these changes. Accordingly, the relative importance figure more closely reflects the cost share weights for FY 2015 than the base year weights from the SNF market basket.

We calculate the labor-related relative importance for FY 2015 in four steps. First, we compute the FY 2015 price index level for the total market basket and each cost category of the market basket. Second, we calculate a ratio for each cost category by dividing the FY 2015 price index level for that cost category by the total market basket price index level. Third, we determine the FY 2015 relative importance for each cost category by multiplying this ratio by the base year (FY 2010) weight. Finally, we add the FY 2015 relative importance for each of the labor-related cost categories (wages and salaries, employee benefits, the labor-related portion of non-medical professional fees, administrative and facilities support services, all other: labor-related services, and a portion of capital-related expenses) to produce the FY 2015 labor-related relative importance. Tables 6 and 7 show the RUG-IV case-mix adjusted federal rates by labor-related and non-labor-related components. As discussed above, the proposed new OMB delineations would be used to identify a facility's urban or rural status for the purpose of determining which set of rate tables would apply to them beginning on October 1, 2014. Table 12 in section V.A.3. provides the FY 2015 labor-related share components based on the SNF market basket.

Section 1888(e)(4)(G)(ii) of the Act also requires that we apply this wage index in a manner that does not result in aggregate payments under the SNF PPS that are greater or less than would otherwise be made if the wage adjustment had not been made. For FY 2015 (federal rates effective October 1, 2014), we would apply an adjustment to fulfill the budget neutrality requirement. We would meet this requirement by multiplying each of the components of the unadjusted federal rates by a budget neutrality factor equal to the ratio of the weighted average wage adjustment factor for FY 2014 to the weighted average wage adjustment factor for FY 2015, based on the blended wage index for FY 2015 as proposed later in this proposed rule. For this calculation, we use the same FY 2013 claims utilization data for both the numerator and denominator of this ratio. We define the wage adjustment factor used in this calculation as the labor share of the rate component multiplied by the wage index plus the non-labor share of the rate component. The budget neutrality factor for FY 2015 would be 1.0001.

In the SNF PPS final rule for FY 2006 (70 FR 45026, August 4, 2005), we adopted the changes discussed in the OMB Bulletin No. 03-04 (June 6, 2003), available online at www.whitehouse.gov/omb/bulletins/b03-04.html, which announced revised definitions for MSAs, and the creation of micropolitan statistical areas and combined statistical areas.

In adopting the CBSA geographic designations, we provided for a one-year transition in FY 2006 with a blended wage index for all providers. For FY 2006, the wage index for each provider consisted of a blend of 50 percent of the FY 2006 MSA-based wage index and 50 percent of the FY 2006 CBSA-based wage index (both using FY 2002 hospital data). We referred to the blended wage index as the FY 2006 SNF PPS transition wage index. As discussed in the SNF PPS final rule for FY 2006 (70 FR 45041), since the expiration of this one-year transition on September 30, 2006, we have used the full CBSA-based wage index values.

On February 28, 2013, OMB issued OMB Bulletin No. 13-01, announcing revisions to the delineation of MSAs, Micropolitan Statistical Areas, and Combined Statistical Areas, and guidance on uses of the delineation of these areas. A copy of this bulletin is available online at http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf. This bulletin states that it “provides the delineations of all Metropolitan Statistical Areas, Metropolitan Divisions, Micropolitan Statistical Areas, Combined Statistical Areas, and New England City and Town Areas in the United States and Puerto Rico based on the standards published on June 28, 2010, in the Federal Register (75 FR 37246-37252) and Census Bureau data.”

While the revisions OMB published on February 28, 2013 are not as sweeping as the changes made when we adopted the CBSA geographic designations for FY 2006, the February 28, 2013 bulletin does contain a number of significant changes. For example, there are new CBSAs, urban counties that become rural, rural counties that become urban, and existing CBSAs that are being split apart.

As discussed in the SNF PPS proposed rule for FY 2014 (78 FR 26448), the changes made by the bulletin and their ramifications required extensive review by CMS before using them for the SNF PPS wage index. Having completed our assessment, we are proposing changes to the SNF PPS wage index based on the newest OMB delineations, as described in OMB Bulletin No. 13-01, beginning in FY 2015, including a proposed one-year transition with a blended wage index for FY 2015. These proposed changes are discussed further in section V.A. of this proposed rule. The proposed wage index applicable to FY 2015 is set forth in Table A available on the CMS Web site at http://cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html. Table A provides a crosswalk between the FY 2015 wage index for a provider using the current OMB delineations in effect in FY 2014 and the FY 2015 wage index using the proposed revised OMB delineations, as well as the proposed transition wage index values that would be in effect in FY 2015 if these proposed changes are finalized.

E. Adjusted Rate Computation Example

Using the hypothetical SNF XYZ described below, Table 8 shows the adjustments made to the federal per diem rates to compute the provider's actual per diem PPS payment. We derive the Labor and Non-labor columns from Table 6. The wage index used in this example is based on the proposed transition wage index, which may be found in Table A as referenced above. As illustrated in Table 8, SNF XYZ's total PPS payment would equal $42,299.26.

Medicare daysPaymentRVX$480.240.8883$426.60$210.62$637.22$637.2214$8,921.08ES2385.590.8883342.52169.11511.63511.633015,348.90RHA242.280.8883215.22106.26321.48321.48165,143.68CC2 *223.340.8883198.3997.95296.34675.66106,756.60BA2153.970.8883136.7767.53204.30204.30306,129.0010042,299.26* Reflects a 128 percent adjustment from section 511 of the MMA.1 Available on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html.IV. Additional Aspects of the SNF PPSA. SNF Level of Care—Administrative Presumption

The establishment of the SNF PPS did not change Medicare's fundamental requirements for SNF coverage. However, because the case-mix classification is based, in part, on the beneficiary's need for skilled nursing care and therapy, we have attempted, where possible, to coordinate claims review procedures with the existing resident assessment process and case-mix classification system discussed in section III.C. of this proposed rule. This approach includes an administrative presumption that utilizes a beneficiary's initial classification in one of the upper 52 RUGs of the 66-group RUG-IV case-mix classification system to assist in making certain SNF level of care determinations.

In accordance with section 1888(e)(4)(H)(ii) of the Act and the regulations at § 413.345, we include in each update of the federal payment rates in the Federal Register the designation of those specific RUGs under the classification system that represent the required SNF level of care, as provided in § 409.30. As set forth in the FY 2011 SNF PPS update notice (75 FR 42910), this designation reflects an administrative presumption under the 66-group RUG-IV system that beneficiaries who are correctly assigned to one of the upper 52 RUG-IV groups on the initial five-day, Medicare-required assessment are automatically classified as meeting the SNF level of care definition up to and including the assessment reference date on the five-day Medicare-required assessment.

A beneficiary assigned to any of the lower 14 RUG-IV groups is not automatically classified as either meeting or not meeting the definition, but instead receives an individual level of care determination using the existing administrative criteria. This presumption recognizes the strong likelihood that beneficiaries assigned to one of the upper 52 RUG-IV groups during the immediate post-hospital period require a covered level of care, which would be less likely for those beneficiaries assigned to one of the lower 14 RUG-IV groups.

In the July 30, 1999 final rule (64 FR 41670), we indicated that we would announce any changes to the guidelines for Medicare level of care determinations related to modifications in the case-mix classification structure. In this proposed rule, we would continue to designate the upper 52 RUG-IV groups for purposes of this administrative presumption, consisting of all groups encompassed by the following RUG-IV categories:

• Rehabilitation plus Extensive Services;

• Ultra High Rehabilitation;

• Very High Rehabilitation;

• High Rehabilitation;

• Medium Rehabilitation;

• Low Rehabilitation;

• Extensive Services;

• Special Care High;

• Special Care Low; and,

• Clinically Complex.

However, we note that this administrative presumption policy does not supersede the SNF's responsibility to ensure that its decisions relating to level of care are appropriate and timely, including a review to confirm that the services prompting the beneficiary's assignment to one of the upper 52 RUG-IV groups (which, in turn, serves to trigger the administrative presumption) are themselves medically necessary. As we explained in the FY 2000 SNF PPS final rule (64 FR 41667), the administrative presumption:

“. . . is itself rebuttable in those individual cases in which the services actually received by the resident do not meet the basic statutory criterion of being reasonable and necessary to diagnose or treat a beneficiary's condition (according to section 1862(a)(1) of the Act). Accordingly, the presumption would not apply, for example, in those situations in which a resident's assignment to one of the upper . . . groups is itself based on the receipt of services that are subsequently determined to be not reasonable and necessary.”

Moreover, we want to stress the importance of careful monitoring for changes in each patient's condition to determine the continuing need for Part A SNF benefits after the assessment reference date of the 5-day assessment.B. Consolidated Billing

Sections 1842(b)(6)(E) and 1862(a)(18) of the Act (as added by section 4432(b) of the BBA) require a SNF to submit consolidated Medicare bills to its Medicare Administrative Contractor for almost all of the services that its residents receive during the course of a covered Part A stay. In addition, section 1862(a)(18) places the responsibility with the SNF for billing Medicare for physical therapy, occupational therapy, and speech-language pathology services that the resident receives during a noncovered stay. Section 1888(e)(2)(A) of the Act excludes a small list of services from the consolidated billing provision (primarily those services furnished by physicians and certain other types of practitioners), which remain separately billable under Part B when furnished to a SNF's Part A resident. These excluded service categories are discussed in greater detail in section V.B.2. of the May 12, 1998 interim final rule (63 FR 26295 through 26297).

A detailed discussion of the legislative history of the consolidated billing provision is available on the SNF PPS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/Downloads/Legislative_History_07302013.pdf. In particular, section 103 of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113, enacted on November 29, 1999) amended section 1888(e)(2)(A) of the Act by further excluding a number of individual “high-cost, low probability” services, identified by Healthcare Common Procedure Coding System (HCPCS) codes, within several broader categories (chemotherapy items, chemotherapy administration services, radioisotope services, and customized prosthetic devices) that otherwise remained subject to the provision. We discuss this BBRA amendment in greater detail in the SNF PPS proposed and final rules for FY 2001 (65 FR 19231 through 19232, April 10, 2000, and 65 FR 46790 through 46795, July 31, 2000), as well as in Program Memorandum AB-00-18 (Change Request #1070), issued March 2000, which is available online at www.cms.gov/transmittals/downloads/ab001860.pdf.

As explained in the FY 2001 proposed rule (65 FR 19232), the amendments enacted in section 103 of the BBRA not only identified for exclusion from this provision a number of particular service codes within four specified categories (that is, chemotherapy items, chemotherapy administration services, radioisotope services, and customized prosthetic devices), but also gave the Secretary “. . . the authority to designate additional, individual services for exclusion within each of the specified service categories.” In the proposed rule for FY 2001, we also noted that the BBRA Conference report (H.R. Rep. No. 106-479 at 854 (1999) (Conf. Rep.)) characterizes the individual services that this legislation targets for exclusion as “. . . high-cost, low probability events that could have devastating financial impacts because their costs far exceed the payment [SNFs] receive under the prospective payment system. . . .” According to the conferees, section 103(a) of the BBRA “is an attempt to exclude from the PPS certain services and costly items that are provided infrequently in SNFs . . .” By contrast, we noted that the Congress declined to designate for exclusion any of the remaining services within those four categories (thus, leaving all of those services subject to SNF consolidated billing), because they are relatively inexpensive and are furnished routinely in SNFs.

As we further explained in the final rule for FY 2001 (65 FR 46790), and as our longstanding policy, any additional service codes that we might designate for exclusion under our discretionary authority must meet the same statutory criteria used in identifying the original codes excluded from consolidated billing under section 103(a) of the BBRA: they must fall within one of the four service categories specified in the BBRA; and they also must meet the same standards of high cost and low probability in the SNF setting, as discussed in the BBRA Conference report. Accordingly, we characterized this statutory authority to identify additional service codes for exclusion “. . . as essentially affording the flexibility to revise the list of excluded codes in response to changes of major significance that may occur over time (for example, the development of new medical technologies or other advances in the state of medical practice)” (65 FR 46791). In this proposed rule, we specifically invite public comments identifying HCPCS codes in any of these four service categories (chemotherapy items, chemotherapy administration services, radioisotope services, and customized prosthetic devices) representing recent medical advances that might meet our criteria for exclusion from SNF consolidated billing. We may consider excluding a particular service if it meets our criteria for exclusion as specified above. Commenters should identify in their comments the specific HCPCS code that is associated with the service in question, as well as their rationale for requesting that the identified HCPCS code(s) be excluded.

We note that the original BBRA amendment (as well as the implementing regulations) identified a set of excluded services by means of specifying HCPCS codes that were in effect as of a particular date (in that case, as of July 1, 1999). Identifying the excluded services in this manner made it possible for us to utilize program issuances as the vehicle for accomplishing routine updates of the excluded codes, to reflect any minor revisions that might subsequently occur in the coding system itself (for example, the assignment of a different code number to the same service). Accordingly, in the event that we identify through the current rulemaking cycle any new services that would actually represent a substantive change in the scope of the exclusions from SNF consolidated billing, we would identify these additional excluded services by means of the HCPCS codes that are in effect as of a specific date (in this case, as of October 1, 2014). By making any new exclusions in this manner, we could similarly accomplish routine future updates of these additional codes through the issuance of program instructions.

C. Payment for SNF-Level Swing-Bed Services

Section 1883 of the Act permits certain small, rural hospitals to enter into a Medicare swing-bed agreement, under which the hospital can use its beds to provide either acute- or SNF-level care, as needed. For critical access hospitals (CAHs), Part A pays on a reasonable cost basis for SNF-level services furnished under a swing-bed agreement. However, in accordance with section 1888(e)(7) of the Act, these services furnished by non-CAH rural hospitals are paid under the SNF PPS, effective with cost reporting periods beginning on or after July 1, 2002. As explained in the FY 2002 final rule (66 FR 39562), this effective date is consistent with the statutory provision to integrate swing-bed rural hospitals into the SNF PPS by the end of the transition period, June 30, 2002.

Accordingly, all non-CAH swing-bed rural hospitals have now come under the SNF PPS. Therefore, all rates and wage indexes outlined in earlier sections of this proposed rule for the SNF PPS also apply to all non-CAH swing-bed rural hospitals. A complete discussion of assessment schedules, the MDS, and the transmission software (RAVEN-SB for Swing Beds) appears in the FY 2002 final rule (66 FR 39562) and in the FY 2010 final rule (74 FR 40288). As finalized in the FY 2010 SNF PPS final rule (74 FR 40356-57), effective October 1, 2010, non-CAH swing-bed rural hospitals are required to complete an MDS 3.0 swing-bed assessment which is limited to the required demographic, payment, and quality items. The latest changes in the MDS for swing-bed rural hospitals appear on the SNF PPS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/index.html.

V. Other IssuesA. Proposed Changes to SNF PPS Wage Index1. Background

Section 1888(e)(4)(G)(ii) of the Act requires that we adjust the federal rates to account for differences in area wage levels, using a wage index that the Secretary determines appropriate. Since the inception of the SNF PPS, we have used hospital inpatient wage data, exclusive of the occupational mix adjustment, in developing a wage index to be applied to SNFs. As noted previously in section III.D of this proposed rule, we are proposing to continue that practice for FY 2015. The wage index used for the SNF PPS is calculated using the Inpatient Prospective Payment System (IPPS) wage index data on the basis of the labor market area in which the acute care hospital is located, but without taking into account geographic reclassifications under section 1886(d)(8) and (d)(10) of the Act, and without applying the IPPS rural floor under section 4410 of the BBA, the IPPS imputed rural floor under 42 CFR 412.64(h), and the outmigration adjustment under section 1886(d)(13) (see the FY 2006 SNF PPS proposed rule (70 FR 29090 through 29092)). The applicable SNF wage index value is assigned to a SNF on the basis of the labor market area in which the SNF is geographically located. Under section 1888(e)(4)(G)(ii) of the Act, beginning with FY 2006, we delineate labor market areas based on the Core-Based Statistical Areas (CBSAs) established by the Office of Management and Budget (OMB). The current statistical areas used in FY 2014 are based on OMB standards published on December 27, 2000 (65 FR 82228) and Census 2000 data and Census Bureau population estimates for 2007 and 2008 (OMB Bulletin No. 10-02). For a discussion of OMB's delineations of CBSAs and our implementation of the CBSA definitions, we refer readers to the preamble of the FY 2006 SNF PPS proposed rule (70 FR 29090 through 29096) and final rule (70 FR 45040 through 45041). As stated in the FY 2014 SNF PPS proposed rule (78 FR 26448) and final rule (78 FR 47952), on February 28, 2013, OMB issued OMB Bulletin No. 13-01, which established revised delineations for Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and provided guidance on the use of the delineations of these statistical areas. A copy of this bulletin may be obtained at http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf. According to OMB, “[t]his bulletin provides the delineations of all Metropolitan Statistical Areas, Metropolitan Divisions, Micropolitan Statistical Areas, Combined Statistical Areas, and New England City and Town Areas in the United States and Puerto Rico based on the standards published on June 28, 2010, in the Federal Register (75 FR 37246-37252) and Census Bureau data.”

While the revisions OMB published on February 28, 2013 are not as sweeping as the changes made when we adopted the CBSA geographic designations for FY 2006, the February 28, 2013 OMB bulletin does contain a number of significant changes. For example, there are new CBSAs, urban counties that have become rural, rural counties that have become urban, and existing CBSAs that have been split apart. However, because the bulletin was not issued until February 28, 2013, with supporting data not available until later, and because the changes made by the bulletin and their ramifications needed to be extensively reviewed and verified, we were unable to undertake such a lengthy process before publication of the FY 2014 SNF PPS proposed rule and, thus, did not implement changes to the wage index for FY 2014 based on these new OMB delineations. In the FY 2014 SNF PPS final rule (78 FR 47952), we stated that we intended to propose changes to the wage index based on the most current OMB delineations in this FY 2015 SNF PPS proposed rule. As discussed below, in this proposed rule, we are proposing to implement the new OMB delineations as described in the February 28, 2013 OMB Bulletin No. 13-01, for SNF PPS wage index beginning in FY 2015.

2. Proposed Implementation of New Labor Market Delineations

As discussed in the FY 2014 SNF PPS proposed rule (78 FR 26448) and final rule (78 FR 47952), CMS delayed implementing the new OMB statistical area delineations to allow for sufficient time to assess the new changes. We believe it is important for the SNF PPS to use the latest OMB delineations available in order to maintain a more accurate and up-to-date payment system that reflects the reality of population shifts and labor market conditions. While CMS and other stakeholders have explored potential alternatives to the current CBSA-based labor market system (we refer readers to the CMS Web site at www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Reform.html), no consensus has been achieved regarding how best to implement a replacement system. As discussed in the FY 2005 IPPS final rule (69 FR 49027), “While we recognize that MSAs are not designed specifically to define labor market areas, we believe they do represent a useful proxy for this purpose.” We further believe that using the most current OMB delineations would increase the integrity of the SNF PPS wage index by creating a more accurate representation of geographic variation in wage levels. We have reviewed our findings and impacts relating to the new OMB delineations, and have concluded that there is no compelling reason to further delay implementation. Because we believe that we have broad authority under section 1888(e)(4)(G)(ii) to determine the labor market areas used for the SNF PPS wage index, and because we also believe that the most current OMB delineations accurately reflect the local economies and wage levels of the areas in which hospitals are currently located, we are proposing to implement the new OMB delineations as described in the February 28, 2013 OMB Bulletin No. 13-01, for the SNF PPS wage index effective beginning in FY 2015. As discussed further below, we are proposing to implement a one-year transition with a blended wage index for all providers in FY 2015 to assist providers in adapting to the new OMB delineations (if we finalize implementation of such delineations for the SNF PPS wage index beginning in FY 2015). We invite comments on this proposal. This proposed transition is discussed in more detail below.

a. Micropolitan Statistical Areas

As discussed in the FY 2006 SNF PPS proposed rule (70 FR 29093 through 29094) and final rule (70 FR 45041), CMS considered how to use the Micropolitan Statistical Area definitions in the calculation of the wage index. OMB defines a “Micropolitan Statistical Area” as a CBSA “associated with at least one urban cluster that has a population of at least 10,000, but less than 50,000” (75 FR 37252). We refer to these as Micropolitan Areas. After extensive impact analysis, consistent with the treatment of these areas under the IPPS as discussed in the FY 2005 IPPS final rule (69 FR 49029 through 49032), CMS determined the best course of action would be to treat Micropolitan Areas as “rural” and include them in the calculation of each state's SNF PPS rural wage index (see 70 FR 29094 and 70 FR 45040 through 45041)). Thus, the SNF PPS statewide rural wage index is determined using IPPS hospital data from hospitals located in non-MSA areas, and the statewide rural wage index is assigned to SNFs located in those areas. Because Micropolitan Areas tend to encompass smaller population centers and contain fewer hospitals than MSAs, we determined that if Micropolitan Areas were to be treated as separate labor market areas, the SNF PPS wage index would have included significantly more single-provider labor market areas. As we explained in the FY 2006 SNF PPS proposed rule (70 FR 29094), recognizing Micropolitan Areas as independent labor markets would generally increase the potential for dramatic shifts in year-to-year wage index values because a single hospital (or group of hospitals) could have a disproportionate effect on the wage index of an area. Dramatic shifts in an area's wage index from year to year are problematic and create instability in the payment levels from year to year, which could make fiscal planning for SNFs difficult if we adopted this approach. For these reasons, we adopted a policy to include Micropolitan Areas in the state's rural wage area for purposes of the SNF PPS wage index, and have continued this policy through the present.

Based upon the new 2010 Decennial Census data, a number of urban counties have switched status and have joined or became Micropolitan Areas, and some counties that once were part of a Micropolitan Area, have become urban. Overall, there are fewer Micropolitan Areas (541) under the new OMB delineations based on the 2010 Census than existed under the latest data from the 2000 Census (581). We believe that the best course of action would be to continue the policy established in the FY 2006 SNF PPS final rule and include Micropolitan Areas in each state's rural wage index. These areas continue to be defined as having relatively small urban cores (populations of 10,000 to 49,999). We do not believe it would be appropriate to calculate a separate wage index for areas that typically may include only a few hospitals for the reasons discussed in the FY 2006 SNF PPS proposed rule, and as discussed above. Therefore, in conjunction with our proposal to implement the new OMB labor market delineations beginning in FY 2015 and consistent with the treatment of Micropolitan Areas under the IPPS, we are proposing to continue to treat Micropolitan Areas as “rural” and to include Micropolitan Areas in the calculation of the state's rural wage index.

b. Urban Counties Becoming Rural

As previously discussed, we are proposing to implement the new OMB statistical area delineations (based upon the 2010 decennial Census data) beginning in FY 2015 for the SNF PPS wage index. Our analysis shows that a total of 37 counties (and county equivalents) that are currently considered part of an urban CBSA would be considered located in a rural area, beginning in FY 2015, if we adopt the new OMB delineations. Table 9 below lists the 37 urban counties that would be rural if we finalize our proposal to implement the new OMB delineations.

Table 9—Counties That Would Lose Urban StatusCountyStatePrevious CBSAPrevious urban area

We are proposing that the wage data for all hospitals located in the counties listed above would now be considered rural when calculating their respective state's rural wage index value, which rural wage index value would be used under the SNF PPS. Furthermore, for SNF providers currently located in an urban county that would be considered rural, should this proposal be finalized, CMS would utilize the rural unadjusted per-diem rates, found in Table 3 above, as the basis for determining this facility's payment rates beginning on October 1, 2014.

c. Rural Counties Becoming Urban

Analysis of the new OMB delineations (based upon the 2010 decennial Census data) shows that a total of 105 counties (and county equivalents) that are currently located in rural areas would be located in urban areas, if we finalize our proposal to implement the new OMB delineations. Table 10 below lists the 105 rural counties that would be urban if we finalize this proposal.

Table 10—Counties That Would Gain Urban StatusCountyStateNew CBSAUrban area

We are proposing that when calculating the area wage index, the wage data for hospitals located in these counties would be included in their new respective urban CBSAs. Furthermore, for SNF providers currently located in a rural county that would be considered urban, should this proposal be finalized, CMS would utilize the urban unadjusted per-diem rates, found in Table 2 above, as the basis for determining this facility's payment rates beginning on October 1, 2014

d. Urban Counties Moving to a Different Urban CBSA

In addition to rural counties becoming urban and urban counties becoming rural, several urban counties would shift from one urban CBSA to another urban CBSA under our proposal to adopt the new OMB delineations. In other cases, applying the new OMB delineations would involve a change only in CBSA name or number, while the CBSA continues to encompass the same constituent counties. For example, CBSA 29140 (Lafayette, IN), would experience both a change to its number and its name, and would become CBSA 29200 (Lafayette-West Lafayette, IN), while all of its three constituent counties would remain the same. We are not discussing these proposed changes in this section because they are inconsequential changes with respect to the SNF PPS wage index. However, in other cases, if we adopt the new OMB delineations, counties would shift between existing and new CBSAs, changing the constituent makeup of the CBSAs.

In one type of change, an entire CBSA would be subsumed by another CBSA. For example, CBSA 37380 (Palm Coast, FL) currently is a single county (Flagler, FL) CBSA. Flagler County would be a part of CBSA 19660 (Deltona-Daytona Beach-Ormond Beach, FL) under the new OMB delineations.

In another type of change, some CBSAs have counties that would split off to become part of or to form entirely new labor market areas. For example, CBSA 37964 (Philadelphia Metropolitan Division of MSA 37980) currently is comprised of five Pennsylvania counties (Bucks, Chester, Delaware, Montgomery, and Philadelphia). If we adopt the new OMB delineations, Montgomery, Bucks, and Chester counties would split off and form the new CBSA 33874 (Montgomery County-Bucks County-Chester County, PA Metropolitan Division of MSA 37980), while Delaware and Philadelphia counties would remain in CBSA 37964.

Finally, in some cases, a CBSA would lose counties to another existing CBSA if we adopt the new OMB delineations. For example, Lincoln County and Putnam County, WV would move from CBSA 16620 (Charleston, WV) to CBSA 26580 (Huntington-Ashland, WV-KY-OH). CBSA 16620 would still exist in the new labor market delineations with fewer constituent counties. Table 11 lists the urban counties that would move from one urban CBSA to another urban CBSA if we adopt the new OMB delineations.

If providers located in these counties move from one CBSA to another under the new OMB delineations, there may be impacts, both negative and positive, upon their specific wage index values. As discussed below, we propose to implement a transition wage index to adjust for these possible impacts.

e. Transition Period

Overall, we believe implementing the new OMB delineations would result in wage index values being more representative of the actual costs of labor in a given area. Further, we recognize that some providers (15 percent) would have a higher wage index due to our proposed implementation of the new labor market area delineations. However, we also recognize that more providers (22 percent) would experience decreases in wage index values as a result of our proposed implementation of the new labor market area delineations. Therefore, we believe it would be appropriate to consider, as we did in FY 2006, whether or not a transition period should be used in order to implement these proposed changes to the wage index.

We considered having no transition period and fully implementing the proposed new OMB delineations beginning in FY 2015. This would mean that we would adopt the revised OMB delineations for all providers on October 1, 2014. However, this would not provide any time for providers to adapt to the new OMB delineations. As discussed above, more providers would experience a decrease in wage index due to implementation of the proposed new OMB delineations than would experience an increase. Thus, we believe that it would be appropriate to provide for a transition period to mitigate the resulting short-term instability and negative impacts on these providers, and to provide time for providers to adjust to their new labor market area delineations. Furthermore, in light of the comments received during the FY 2006 rulemaking cycle on our proposal in the FY 2006 SNF PPS proposed rule (70 FR 29094-29095) to adopt the new CBSA definitions without a transition period, we anticipate that providers would have similar concerns with not having a transition period for the proposed new OMB delineations. Therefore, as further discussed below, similar to the policy adopted in the FY 2006 SNF PPS final rule (70 FR 45041) when we first adopted OMB's CBSA definitions for purposes of the SNF PPS wage index, we are proposing a one-year transition blended wage index for all SNFs to assist providers in adapting to the new OMB delineations (should we finalize implementation of such delineations for the SNF PPS wage index beginning in FY 2015). In determining an appropriate transition methodology, consistent with the objectives set forth in the FY 2006 SNF PPS final rule (70 FR 45041), we looked for approaches that would provide relief to the largest percentage of adversely-affected SNFs with the least impact to the rest of the facilities.

First, we considered transitioning the wage index to the revised OMB delineations over a number of years in order minimize the impact of the proposed wage index changes in a given year. However, we also believe this must be balanced against the need to ensure the most accurate payments possible, which argues for a faster transition to the revised OMB delineations. As discussed above in section V.A.2 of this proposed rule, we believe that using the most current OMB delineations would increase the integrity of the SNF PPS wage index by creating a more accurate representation of geographic variation in wage levels. As such, we believe that utilizing a one-year (rather than a multiple year) transition with a blended wage index in FY 2015 would strike the best balance.

Second, we considered what type of blend would be appropriate for purposes of the transition wage index. We are proposing that providers would receive a one-year blended wage index using 50 percent of their FY 2015 wage index based on the proposed new OMB delineations and 50 percent of their FY 2015 wage index based on the OMB delineations used in FY 2014. We believe that a 50/50 blend would best mitigate the negative payment impacts associated with the implementation of the proposed new OMB delineations. While we considered alternatives to the 50/50 blend, we believe this type of split balances the increases and decreases in wage index values associated with this proposal, as well as provides a readily understandable calculation for providers.

Next, we considered whether or not the blended wage index should be used for all providers or for only a subset of providers, such as those providers that would experience a decrease in their respective wage index values due to implementation of the revised OMB delineations. If we were to apply the transition policy only to those providers that would experience a decrease in their respective wage index values due to the implementation of the revised OMB delineations, then providers that would experience either no change in wage index or an increase in wage index due to the revised OMB delineations would be immediately transitioned to the FY 2015 wage index under the revised OMB delineations. As required in Section 1888(e)(4)(G)(ii) of the Act, the wage index adjustment must be implemented in a budget-neutral manner. As such, if we were to apply the transition policy only to those providers that would experience a decrease in their respective wage index values due to implementation of the revised OMB delineations, the budget neutrality factor, discussed in section III.D, calculated based on this this approach would be 0.9986, which would result in reduced base rates for all providers as compared to the budget neutrality factor of 1.0001 which would result from applying the blended wage index to all providers. Furthermore, based on our analysis of the wage index changes associated with fully implementing the revised OMB delineations, we determined that the new OMB delineations would only affect the wage index values of approximately 37 percent of facilities. Given that our goal is to provide relief to the largest percentage of adversely-affected SNFs with the least impact to the rest of the facilities (whose wage index values either would remain the same or would increase), we believe that using a blended wage index for all providers would be the best option. This option would assist the 22 percent of providers that would be adversely affected by the proposed implementation of the new OMB delineations without reducing the base rates for all providers, 63 percent of which would otherwise be unaffected by the proposed implementation of the new OMB delineations. In other words, this option is based on a balance between the interests of all SNF providers, including the 15 percent of providers that would experience an increase in their wage index value due to the proposed implementation of the new OMB delineations, the 22 percent of providers that would experience a decrease in their wage index value due to the proposed implementation of the new OMB delineations, and the 63 percent of providers that would be unaffected by the proposed implementation of the new OMB delineations. As discussed above, if we were to apply the blended wage index only to the 22 percent of providers that would experience a decrease in their respective wage index values due to the proposed implementation of the new OMB delineations in an effort to preserve the full increase in wage index value for the 15 percent of providers that would experience such an increase due to the proposed implementation of the new OMB delineations, the budget neutrality factor of 1.0001 referenced in section III.D, which is based on applying the blended wage index to all providers, would be revised to 0.9986. As such, this would mean a reduction in the base rate for all providers, most notably the 63 percent of providers that would be unaffected by the proposed implementation of the new OMB delineations, but also for that 15 percent of providers that would experience an increase in their wage index value.

Moreover, while providers experience wage index changes from year to year based on updating the wage data, full implementation of the proposed new OMB delineations would dramatically increase the magnitude of those changes for some providers. Year-to-year wage index changes usually vary from decreases as high as 10 percent to increases as high as 10 percent. Using FY 2011 wage data (the data used for the FY 2015 wage index), the range of changes in the wage index values due solely to full implementation of the proposed OMB delineations would span from decreases of over 20 percent to increases of over 30 percent. Therefore, in addition to mitigating the impact of the proposed OMB delineations on the facilities that are adversely affected by them and providing a period to adjust, we believe a transition wage index could also mitigate the volatility of the SNF PPS wage index caused by these proposed changes.

Therefore, for the reasons discussed above, if we finalize implementation of the new OMB delineations, we are proposing to apply a one-year transition with a 50/50 blended wage index for all providers in FY 2015. We propose to calculate the FY 2015 wage indexes using both the current FY 2014 and proposed new labor market delineations. Specifically, providers would receive 50 percent of their FY 2015 wage index based on the new OMB delineations, and 50 percent of their FY 2015 wage index based on the labor market area delineations for FY 2014 (both using FY 2011 hospital wage data). This ultimately results in an average of the two values. As we stated in the FY 2006 SNF PPS final rule (70 FR 45041), we believe that our proposed transition approach would best achieve our objective of providing relief to the largest percentage of adversely-affected SNFs with the least impact to the rest of the facilities, because it reduces the impact of the transition on the base rates for all providers. For the reasons discussed above, and based on provider reaction during the FY 2006 rulemaking cycle to the proposed adoption of the new CBSA definitions, we are proposing to provide a one-year blended wage index for all SNFs to assist providers in adapting to these proposed changes. We refer to this blended wage index as the FY 2015 SNF PPS transition wage index. This transition policy would be for a one-year period, going into effect October 1, 2014, and continuing through September 30, 2015. Thus, beginning October 1, 2015, the wage index for all SNFs would be fully based on the new OMB delineations. We invite comments on our proposed transition methodology, as well as on the other transition options discussed above.

The proposed wage index applicable to FY 2015 is set forth in Table A available on the CMS Web site at http://cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/WageIndex.html. Table A provides a crosswalk between the FY 2015 wage index for a provider using the current OMB delineations in effect in FY 2014 and the FY 2015 wage index using the proposed revised OMB delineations, as well as the proposed transition wage index values that would be in effect in FY 2015 if these proposed changes are finalized.

3. Labor-Related Share

Each year, we calculate a revised labor-related share based on the relative importance of labor-related cost categories in the SNF market basket as discussed in Section III.D of this proposed rule. Table 12 summarizes the proposed updated labor-related share for FY 2015, compared to the labor-related share that was used for the FY 2014 SNF PPS final rule.

Relative importance, labor-related, FY 2015 14:1 forecast 2Wages and salaries49.11849.116Employee benefits11.42311.373Nonmedical Professional fees: labor-related3.4463.460Administrative and facilities support services0.4990.503All Other: Labor-related services2.2872.285Capital-related (.391)2.7722.776Total69.54569.5131 Published in the Federal Register; based on second quarter 2013 IGI forecast.2 Based on first quarter 2014 IGI forecast, with historical data through fourth quarter 2013.B. SNF Therapy Research Project

As discussed in the FY 2014 SNF PPS proposed rule (78 FR 26466, May 6, 2013), CMS contracted with Acumen, LLC and the Brookings Institution to identify potential alternatives to the existing methodology used to pay for therapy services received under the SNF PPS. Under the current payment model, the therapy payment rate component of the SNF PPS is based solely on the amount of therapy provided to a patient during the 7-day look-back period, regardless of the specific patient characteristics. The amount of therapy a patient receives is used to classify the resident into a RUG category, which then determines the per diem payment for that resident. In the FY 2014 SNF PPS proposed rule (78 FR 26466, May 6, 2013), we invited public comment on this project. In the FY 2014 SNF PPS final rule (78 FR 47963, August 6, 2013), we discussed the comments we received on this project, all of which supported the overall goals and objective of the project, and a few highlighted the importance of maintaining contact with the stakeholder community.

In this proposed rule, we are taking the opportunity to update the public on the current state of this project. In September 2013, we completed the first phase of the research project, which included a literature review, stakeholder outreach, supplementary analyses, and a comprehensive review of options for a viable alternative to the current therapy payment model. CMS produced a report outlining the most promising and viable options that we plan to pursue in the second phase of the project. The report is available on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html.

During the second phase of the project, which began in September 2013, our team will further develop the options outlined in the aforementioned report and perform more comprehensive data analysis to determine which of these options would work best as a potential replacement for the existing therapy payment model. In keeping with the public comments we received on this project previously, we also plan to engage the stakeholder community by convening a Technical Expert Panel during this second phase of the project to discuss the available alternatives, as well as present some of the initial data analysis that is currently being conducted. We hope that by convening this Technical Expert Panel, we can best ensure that we utilize the expertise of the stakeholder community in identifying the most viable alternative to the current therapy payment model.

As before, comments may be included as part of comments on this proposed rule. We are also soliciting comments outside the rulemaking process and these comments should be sent via email to SNFTherapyPayments@cms.hhs.gov. Information regarding this project can be found on the project Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html.

On October 1, 2011, CMS introduced the Change of Therapy (COT) Other Medicare Required Assessment (OMRA), which is an assessment designed to capture changes in the therapy services provided to a given SNF resident during the past 7 days. As discussed in the FY 2012 SNF PPS final rule, this assessment was implemented because we had found that in certain cases, “the therapy recorded on a given PPS assessment did not provide an accurate account of the therapy provided to a given resident outside the observation window used for the most recent assessment” (76 FR 48518).

To address this situation, effective for services provided on or after October 1, 2011, we required facilities to complete a COT OMRA for patients classified into a RUG-IV therapy category, whenever the intensity of therapy (that is, the total reimbursable therapy minutes delivered or other therapy category qualifiers, such as the number of days the patient received therapy during the week or the number of therapy disciplines) changes to such a degree that it would no longer reflect the RUG-IV classification and payment assigned for a given SNF resident based on the most recent assessment used for Medicare payment (see 76 FR 48525). In addition, as discussed in the FY 2012 SNF PPS final rule (76 FR 48523 through 48524, 48526), the COT OMRA policy also applies to patients who are receiving a level of therapy sufficient for classification into a therapy RUG, but are classified into a nursing RUG because of index maximization. An evaluation of the necessity for a COT OMRA must be completed every 7 calendar days starting from the day following the Assessment Reference Date (ARD) set for the most recent scheduled or unscheduled PPS assessment (or in the case of an End of Therapy-Resumption-OMRA, starting the day that therapy resumes). This rolling 7-day window is called the COT observation period. As discussed in the FY 2012 SNF PPS final rule (76 FR 48523), the purpose of the COT OMRA is to track changes in a patient's condition and in the provision of therapy services more accurately to ensure that the patient is placed in the appropriate RUG category, thereby improving the accuracy of reimbursement.

As discussed above, the resident must be classified into a RUG-IV therapy category or into a nursing RUG because of index maximization (while receiving a level of therapy sufficient for classification into a RUG-IV therapy category) in order for the COT OMRA requirements to apply. However, since implementation of this assessment, we have learned that, in rare cases where a resident has been classified into a RUG-IV therapy category, therapy services provided to the resident during a COT observation period may not be sufficient to continue to qualify the resident for any therapy RUG, resulting in classification of the resident into a non-therapy RUG. During a subsequent week when the therapy services are sufficient to again qualify the resident for a therapy RUG, providers have indicated that they cannot complete a subsequent COT OMRA to reclassify the resident into a therapy RUG because the resident is no longer in a therapy RUG or in a nursing RUG because of index maximization as discussed above (pursuant to the conditions set forth in the FY 2012 SNF PPS final rule and in Section 2.9 of the MDS 3.0 RAI manual). As a result, providers are unable to use the COT OMRA to capture the increased therapy services provided to the resident to ensure accurate payment for the services provided, which is the express purpose of the COT OMRA.

Accordingly, we propose to revise the existing COT OMRA policy to permit providers to complete a COT OMRA for a resident who is not currently classified into a RUG-IV therapy group, or receiving a level of therapy sufficient for classification into a RUG-IV therapy group as discussed above, but only in those rare cases where the resident had qualified for a RUG-IV therapy group on a prior assessment during the resident's current Medicare Part A stay and had no discontinuation of therapy services between Day 1 of the COT observation period for the COT OMRA that classified the resident into his/her current non-therapy RUG-IV group and the ARD of the COT OMRA that reclassified the patient into a RUG-IV therapy group. Under the proposed policy, while a COT OMRA may be used to reclassify a resident into a therapy RUG in the circumstances described above, it may not be used to initially classify a resident into a therapy RUG. We believe it is appropriate to revise the COT OMRA policy in this manner to provide for more accurate payment for services provided to those residents who have qualified for a RUG-IV therapy group during their Medicare Part A stay and continue to receive skilled therapy services during their Medicare Part A stay (even though they may have been classified into a non-therapy RUG as discussed above).

Consider, for example, if Mr. A. was classified into the RUG group RUA on his 30-day assessment with an ARD set for Day 30 of his stay. On Day 37, the facility checks how much therapy was provided to Mr. A. and finds that while Mr. A. did receive the requisite number of therapy minutes to qualify for this RUG category, he only received therapy on 4 distinct calendar days, which would make it impossible for him to qualify for an Ultra-High Rehabilitation RUG group. Moreover, due to the lack of 5 distinct calendar days of therapy and the lack of any restorative nursing services, Mr. A. does not qualify for any therapy RUG group. As a result, the facility must complete a COT OMRA for Mr. A., on which he may only classify to a non-therapy RUG group. Let us further assume that the facility continues to provide Mr. A. with skilled therapy and that, when looking back on Mr. A.'s services from Day 44 (7 days after the ARD of the COT OMRA), Mr. A. again qualifies for classification in the RUG group RUA.

Under the existing COT OMRA policy, it would not be possible for this provider to reclassify Mr. A. back into RUA from the non-therapy group by using a COT OMRA. Instead, Mr. A. could only be classified into a therapy RUG either by discontinuing his therapy using an End of Therapy (EOT) OMRA and beginning a new therapy program and completing a Start of Therapy (SOT) OMRA, or by waiting until the next scheduled assessment. Under our proposed revised policy, this provider would be permitted to complete a COT OMRA with an ARD of Day 44 in order to reclassify Mr. A. back into the RUA group. The facility would then continue to review the therapy services provided to Mr. A. in order to ensure that these services continue to reflect Mr. A.'s current RUG-IV therapy classification.

To further clarify the scope of this proposal, consider a slightly different example in which Mr. A. is classified into the RUG group RUA on his 30-day assessment with an ARD set for Day 30 of his stay. On Day 37, the facility checks the amount of therapy that was provided to Mr. A. and finds that while Mr. A. did receive the requisite number of therapy minutes to qualify for this RUG category, he only received therapy on 4 distinct calendar days, which would make it impossible for him to qualify for an Ultra-High Rehabilitation RUG group. Moreover, due to the lack of 5 distinct calendar days of therapy and the lack of any restorative nursing services, Mr. A. does not qualify for any therapy RUG group. As a result, the facility must complete a COT OMRA for Mr. A., on which he may only classify for a non-therapy RUG group. However, as opposed to the previous situation where the resident's therapy continued during the week following the COT OMRA, let us assume that the facility decides to discontinue his therapy services by completing an End of Therapy OMRA with an ARD set for Day 39, resulting in a non-therapy RUG classification for Mr. A. The facility subsequently decides to restart Mr. A.'s therapy services, beginning on Day 41 of his stay. The facility looks back from Day 47 (7 days following the day therapy began on Day 41, including Day 41) to review the therapy services provided to Mr. A. during the prior week and finds that Mr. A. would qualify for the RUG group RVA.

As in the prior example, under the existing COT OMRA policy, it would not be possible for this provider to classify Mr. A. into RVA from the non-therapy group by using a COT OMRA. However, as opposed to the prior example, under the revised COT OMRA policy proposed in this proposed rule, the facility would still not be permitted to complete the COT OMRA in this instance, as a discontinuation of therapy services had occurred between Day 1 of the COT observation period for the COT OMRA that classified the resident into his/her current non-therapy RUG-IV group and the ARD of the COT OMRA that would have been used to reclassify the patient into a RUG-IV therapy group if it had been permitted. Based on this example, in order to reclassify the resident into a RUG-IV therapy group, the provider would need to either complete a Start of Therapy OMRA or wait until the next regularly scheduled assessment.

We believe this proposal would address the concern of those providers who have experienced the rare occurrence of a COT OMRA classifying a resident into a non-therapy RUG group from a therapy RUG group, where the patient continues to receive therapy and later qualifies again for a therapy RUG. We believe this proposed revision to the COT OMRA policy would ensure the most accurate payment for therapy services furnished to such residents by allowing providers to capture variations in therapy services on a weekly basis. As with other similar policy changes, if this revision is finalized, then we intend to monitor the impact of this revision to ensure that is has the intended effect. We invite comments on this proposed change to the existing COT OMRA policy.

D. Civil Money Penalties (Section 6111 of the Affordable Care Act)

Sections 6111 of the Patient Protection and Affordable Care Act (Affordable Care Act), amended sections 1819(h) and 1919(h) of the Act to incorporate specific provisions pertaining to the imposition and collection of civil money penalties (CMPs). Sections 1819(h)(2)(B)(ii)(IV)(ff) and 1919(h)(3)(C)(ii)(IV)(ff) of the Act specifies that some portion of such amounts collected may be used to support activities that benefit residents, including assistance to support and protect residents of a facility that closes (voluntarily or involuntarily) or is decertified (including offsetting costs of relocating residents to home and community-based settings or another facility), projects that support resident and family councils and other consumer involvement in assuring quality care in facilities, and facility improvement initiatives approved by the Secretary (including joint training of facility staff and surveyors, technical assistance for facilities implementing quality assurance programs, the appointment of temporary management firms, and other activities approved by the Secretary). These changes were implemented in a final rule published on March 18, 2011 entitled “Medicare and Medicaid Programs; Civil Money Penalties for Nursing Homes.” At § 488.433, we specify that these funds may not be used for survey and certification operations but must be used entirely for activities that protect or improve the quality of care for residents and that these activities must be approved by CMS.

This proposed rule would clarify statutory requirements as specified in section 6111 of the Affordable Care Act regarding the approval and use of CMPs imposed by CMS. It is important to note that these clarifications not only apply to the Federal share of collected CMP funds granted for approved projects that benefit residents under § 488.433, but they also apply to the portion of the CMPs collected by CMS that is disbursed to the states based on the proportion of Medicaid eligible nursing home residents under § 488.442(e)(2) and (f). The amendments made by section 6111 of the Affordable Care Act makes it clear that the specified use of CMP funds collected from SNFs, SNF/NFs, and NF-only facilities as a result of CMPs imposed by CMS, must be approved by CMS by specifying that the activities that CMP funds are used for must be approved by the Secretary. Sections 1819(h)(2)(B)(ii)(IV)(ff) and 1919(h)(3)(C)(ii)(IV)(ff) of the Act also provide for flexibility on how CMP funds imposed by CMS may be used within the bounds established by law. The regulations at § 488.433 specify that collected CMP funds must be used entirely for activities that protect or improve the quality of care for residents, and may not be used for survey and certification operations. However, we are aware of instances in which states have used federal CMP funds without obtaining prior approval from CMS, have used these funds even though CMS had disapproved their intended use, have not used these funds at all, or have used these funds for purposes other than to support activities that benefit residents as specified in statute and regulation. For example, information reported by the CMS Regional Offices for CY 2012 indicates that 24 states had not approved any projects using CMP funds. While some states have only small amounts of CMP funds available and seek to maintain a core reserve in the event of emergencies or involuntary termination that necessitates timely relocation for resident safety and well-being, other states maintain significant amounts of funds. One state, for example, maintained more than $15 million in FY 2012. While it is very prudent to maintain a reserve fund for emergencies, we believe that maintenance of large amounts of unused CMP funds is not desirable or consistent with ensuring that collected CMP funds be used to benefit nursing home residents. In addition, large amounts of unused CMP funds may create the appearance that CMPs are being levied for purposes other than to benefit nursing home residents.

A key function of the CMP remedy is to prompt quick compliance with the federal health and safety requirements. These monies must be used to support projects or activities that will benefit nursing home residents. Entities applying for approval of projects utilizing CMP funds must demonstrate that the planned use will benefit nursing home residents and promote compliance with the regulations.

We propose changes to the CMS enforcement regulations at § 488.433 to clarify and strengthen these provisions to provide more specific instructions to states regarding the use of CMPs and the approval process, and to permit an opportunity for greater transparency and accountability of CMP monies utilized by States.

We invite public comment on our proposed changes. This proposed rule would explicitly clarify the intended use and statutory requirements of collected CMP funds. Specifically, we propose to: (1) Specify that CMP funds may not be used for state management operations except for the reasonable costs that are consistent with managing projects utilizing CMP funds; (the rationale for this clarification is explained further in section VI.); (2) clarify CMS's expectations that States must obtain prior approval for use of these CMP funds; (3) outline specific requirements that must be included in proposals submitted for CMS approval; (4) specify that CMPs funds may not be used for projects that have been disapproved by CMS; (5) specify that states are responsible for having an acceptable plan to solicit, accept, monitor and track projects utilizing CMP funds and make the results of all approved projects publicly available on at least an annual basis; (6) specify that state plans must ensure that a core amount of civil money penalty funds will be held in reserve for emergencies, such as relocation of residents in the event of involuntary termination from Medicare and Medicaid, and (7) specify that if a state is not spending collected CMPs in accordance with the law or not at all, that CMS has authority to take appropriate steps to ensure that these funds are used for their intended purpose, such as withholding future disbursements of CMP amounts. We do not believe this has significant cost implications and it will benefit nursing home residents to ensure that CMP funds will be used for their intended purpose. We further invite public comment on CMS's proposed methods to ensure compliance with these requirements.

E. Observations on Therapy Utilization Trends

In the FY 2014 SNF PPS final rule (78 FR 47959 through 47960), we discussed our monitoring efforts associated with the impact of certain policy changes finalized in the FY 2012 SNF PPS final rule (76 FR 48486). We noted that we would continue these monitoring efforts and report any new information as appropriate. We are not proposing new Medicare policy in this discussion of observed trends but merely highlighting that we will continue to monitor these observed trends which may serve as the basis for future policy development.

In the FY 2014 SNF PPS proposed rule (78 FR 26464), we presented data which compared various utilization metrics including, in particular, the case-mix distribution for the RUG-IV therapy categories (Ultra-High Rehabilitation or RU, Very-High Rehabilitation or RV, High Rehabilitation or RH, Medium Rehabilitation or RM, and Low Rehabilitation or RL), for FY 2011 and FY 2012. It was observed based on those data that the percentage of billed days of service being classified into the RU RUG groups had increased from 44.8 percent in FY 2011 to 48.6 percent in FY 2012, while utilization in all other therapy RUG categories either remained stable or declined. We have since updated this data set using data from FY 2013 and have posted a memo to the SNF PPS Web site (available at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/Spotlight.html) which demonstrates that the percentage of billed service days in the RU RUG groups has increased to over 50 percent. These revised data in the aforementioned memo are presented in a slightly different format than they have been presented in the past, which is to show how, over the course of the past 3 years since October of 2010, the percentage of residents classified into one of these Ultra-High Rehabilitation groups has not only increased, but done so rather steadily.

The second identified trend that we would highlight here and is discussed in the memo referenced above is that, most notably in the cases of RU and RV RUG groups, the amount of therapy reported on the MDS is just enough to surpass the relevant therapy minute threshold for a given therapy RUG category. For example, as demonstrated in Figure 2 in the aforementioned memo, the percentage of claims-matched MDS assessments in the range of 720 minutes to 739 minutes, which is just enough to surpass the therapy minute threshold for RU RUG groups of 720 minutes, has increased from 21 percent in FY 2011 to 33 percent in FY 2013. As stated above, this trend also holds for residents classified into a RV RUG group, where the largest percentage of service days were provided in the 500 to 520 minutes range, which just surpasses the therapy minute threshold for the RV RUG groups of 500 minutes.

We invite comment on the data presented here and the discussion of observed trends.

F. Accelerating Health Information Exchange in SNFs

As we have stated in the past, we believe all patients, and others involved in the patient's care, and their healthcare providers should have consistent and timely access to their health information in a standardized format that can be securely exchanged between the patient, providers, and others involved in the patient's care. (HHS August 2013 Statement, “Principles and Strategies for Accelerating Health Information Exchange.”) The Department is committed to accelerating health information exchange (HIE) through the use of electronic health records (EHRs) and other types of health information technology (HIT) across the broader care continuum through a number of initiatives including: (1) Alignment of incentives and payment adjustments to encourage provider adoption and optimization of HIT and HIE services through Medicare and Medicaid payment policies; (2) adoption of common standards and certification requirements for interoperable HIT; (3) support for privacy and security of patient information across all HIE-focused initiatives; and (4) governance of health information networks. These initiatives are designed to improve care delivery and coordination across the entire care continuum and encourage HIE among all health care providers, including professionals and hospitals eligible for the Medicare and Medicaid EHR Incentive Programs and those who are not eligible for the EHR Incentive Programs. To increase flexibility in ONC's HIT Certification Program and expand HIT certification, ONC has issued a proposed rule concerning a voluntary 2015 Edition of EHR certification criteria which would more easily accommodate certification of HIT used in other types of health care settings where individual or institutional health care providers are not typically eligible for incentive payments under the Medicare and Medicaid EHR Incentive Programs, such as long-term and post-acute care and behavioral health settings.

We believe that HIE and the use of certified EHRs by SNFs and other types of providers that are ineligible for the Medicare and Medicaid EHR Incentive Programs can effectively and efficiently help providers improve internal care delivery practices, support management of patient care across the continuum, and enable the reporting of electronically specified clinical quality measures (eCQMs). More information on the identification of EHR certification criteria and development of standards applicable to SNFs can be found at:

As discussed in section III. of this proposed rule, this proposed rule would update the payment rates under the SNF PPS for FY 2015 as required by section 1888(e)(4)(E)(ii) of the Act. In addition, we propose to use the most current OMB delineations (discussed in section V.A) to identify a facility's urban or rural status for the purpose of determining which set of rate tables would apply to the facility (section III.B.). Furthermore, as discussed in section V. of this proposed rule, we propose changes to the wage index based on the most current OMB delineations, including a one-year transition with a blended wage index for FY 2015 (section V.A.); propose to revise the policy governing use of the COT OMRA (section V.C.); and finally, propose changes to the enforcement regulations related to civil money penalties utilized by states (section V.D.).

With reference to the civil money penalty provisions discussed in section V.D. of this proposed rule, we propose to modify current CMS regulations to provide further clarification to states and the public regarding prior approval and appropriate use of these federal-imposed civil money penalty funds.

At § 488.433, civil money penalties: Uses and approval of civil money penalties imposed by CMS, we propose to amend this regulation to specify that civil money penalties may not be used for state management operations except for the costs that are consistent with managing the civil money penalty funds, specify that all activities utilizing civil money penalty funds must be approved in advance by CMS, outline specific requirements that must be included in proposals submitted for CMS approval, specify that states are responsible for monitoring and tracking the results of all approved activities utilizing civil money penalties and making this information publicly available, specify that state plans must ensure that a core amount of civil money penalty funds will be held in reserve for emergencies, such as relocation of residents in the event of involuntary termination from Medicare and Medicaid, and specify steps CMS will take if civil money penalty funds are being used for disapproved purposes or not being used at all.

The proposed CMS regulation would explicitly clarify the intended use of these civil money penalty funds including the processes for prior approval of all activities using civil money penalty funds by CMS and how CMS will address a state's use of civil money penalty funds for activities that have been disapproved by CMS or used by states for activities other than those explicitly specified in statute or regulations.

At proposed § 488.433(a), we would clarify that approved projects may work to improve residents' quality of life and not just quality of care. We would also clarify that states while states may not use funds for survey and certification operations or state expenses, they may use a reasonable amount of civil money penalty funds for the actual administration of grant awards, including the tracking, monitoring, and evaluating of approved projects. Some states have maintained that effective use and management of the civil money penalty funds requires more state oversight and planning than they are able to provide currently, and that an allowance for such management would remove a barrier to the effective use of these funds. We have not proposed a monetary or numeric limit on what might be considered reasonable, although one to 3 percent of available funds might be considered reasonable for an established fund. We invite comment on the question of appropriate limits.

At proposed § 488.433(b)(5), we would clarify in a new paragraph that in extraordinary situations involving closure of a facility, civil monetary penalty funds may be used to pay the salary of a temporary manager when CMS concludes that it is infeasible to ensure timely payment for such a manager by the facility. We have encountered situations, for example, in which a facility is in bankruptcy and the court has frozen all funds at the very time that residents are being relocated and closure is proceeding. In another situation involving involuntary termination from Medicare and impending closure of the facility, the facility was not making payments for staff or for its utilities, and residents were at risk due to the imminent departure of staff and the absence of a manager. While § 489.55 permits Medicare and Medicaid payments to a facility to continue for up to 30 days after the effective date of a facility's termination or possibly longer (or shorter) if a facility has submitted a notification of closure under § 483.75(r) in order to promote the orderly and safe relocation of residents, if the continued Medicare and Medicaid payments are being used to pay for facility operations during the relocation period but are being diverted elsewhere by the facility, then residents may be placed at increased risk. The proposed change at § 488.433(b)(5) would clarify not only that CMS places a priority on resident protection and protection of the Trust Fund and allows such emergency use of civil money funds, but that CMS also intends to stop or suspend the payments to the facility under § 489.55 when such a situation occurs.

At new § 488.433(c), we specify the requirements for all CMP fund proposals being submitted to CMS for approval.

At new § 488.433 (d), we state that CMP funds may not be used for activities that have been disapproved by CMS.

At new § 488.433(e), we propose that states must maintain an acceptable plan for the effective use of civil monetary penalty funds, including a description of methods by which the state will solicit, accept, monitor, and track approved projects funded by CMP amounts and make key information publicly available. Examples of information that must be publically available would include information on the projects that have been approved by CMS, the grantee and project recipients, the dollar amounts of projects approved, and the results of the projects. We also propose that these plans provide for a minimum amount of funds that will generally be held in reserve for emergencies, unless the state's plan demonstrates the availability of other funds to cover emergency situations, and a reasonable aggregate amount of civil money penalty funds, beyond the emergency reserve amount, that the state expects to disburse each year for grants or contracts of projects that benefit residents and are consistent with the statute and CMS regulations. We appreciate that states may wish to develop a multi-year plan and provide an approximate range of total amount that the state plans to disburse. The intent is to ensure there is an acceptable plan, and that a state is prepared to respond to emergencies while at the same time is not maintaining a large unused amount of civil monetary penalty funds.

In § 488.433(f), we propose that CMS may withhold future disbursement of collected civil money penalty funds to a state if CMS finds that the state has not spent such funds in accordance with the statute and regulations, fails to make use of funds to benefit the quality of care or life of residents, or fails to maintain an acceptable plan approved by CMS.

VII. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995 (PRA), we are required to publish a 60-day notice in the Federal Register and solicit public comments before a collection of information requirement is submitted to the Office of Management and Budget (OMB) for review and approval. In order to evaluate fairly whether an information collection should be approved by OMB, section 3506(c)(2)(A) of the PRA requires that we solicit comments on the following issues:

• The need for the information collection and its usefulness in carrying out the proper functions of our agency.

• The accuracy of our estimate of the information collection burden.

• The quality, utility, and clarity of the information to be collected.

• Recommendations to minimize the information collection burden on the affected public, including automated collection techniques.

A. Information Collection Requirements (ICRs)

While this proposed rule does not have any PRA implications, we are soliciting comment on the following:

While sections III and V propose to revise certain policies related to the current rate setting methodology (such as the use of updated OMB delineations to assign a facility the urban or rural per diem rate and to calculate wage index adjustments), the provisions would not impose any new or revised reporting, recordkeeping, or third-party disclosure requirements. Nor would they require the development, acquisition, installation, and utilization of any new or revised technology or information systems. Consequently, they do not require review under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

While section V.C. proposes to revise current COT OMRA policy by permitting providers to complete a COT OMRA for a resident who is not currently classified into a RUG-IV therapy group in certain circumstances, this provision does not impose any new or revised reporting, recordkeeping, or third-party disclosure requirements. Consequently, it does not require review under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

3. ICRs Regarding the Use of Civil Money Penalties (§ 488.433(c))

In § 488.433(c), states proposing to use civil money penalties for certain activities are required to submit descriptions of the intended outcomes, deliverables, sustainability, and methods by which the results will be assessed, including specific measures. Prior to using these funds, the activities must be approved by CMS under existing regulations. The proposed language in this rule provides methods to ensure that these requirements are followed and to promote additional transparency.

The provision does not require additional OMB review under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). In addition, as stated in the Civil Money Penalties for Nursing Homes final rule published on March 18, 2011 (76 FR 15125), sections 4204(b) and 4214(d) of the Omnibus Budget Reconciliation Act of 1987 (OBRA '87), Public Law 100-203, enacted on December 21, 1987, provide waivers of Office of Management and Budget review of information collection requirements for the purpose of implementing the nursing home reform amendments. The provisions of OBRA '87 that exempt agency actions to collect information from states or facilities relevant to survey and enforcement activities from the Paperwork Reduction Act are not time-limited.

4. ICRs Regarding Civil Money Penalty Plans (§ 488.433(e))

In § 488.433(e), states would be required to maintain an acceptable plan (approved by CMS) for the effective use of civil money funds. The plan must include a description of methods by which the state will: (1) Solicit, accept, monitor, and track projects utilizing civil money penalty funds; (2) make information about the use of civil money penalty funds publicly available, including key information about approved projects, the grantee or contract recipients, and the results of projects; (3) ensure that a core amount of civil money penalty funds will be held in reserve for emergencies, such as unplanned relocation of residents pursuant to an involuntary termination from Medicare and Medicaid; and (4) ensure that a reasonable amount of funds, beyond those held in reserve, will be awarded or contracted each year.

Since current statute, regulations and/or CMS policy guidance released to the states already specifies that all proposed activities using civil money penalty funds must be submitted to CMS for approval and must contain information on the expected final outcomes of the activity and how the results of the activity will be assessed, states must already have plans in place to monitor and track the outcomes of all approved activities using these funds. Consequently, the proposed provision would not require any substantive revision to any state plans and would not impose any additional burden to states.

Since the provisions in § 488.433(e) would not impose any new or revised reporting, recordkeeping, or third-party disclosure requirements, they do not require additional OMB review under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). In addition, as stated in the Civil Money Penalties for Nursing Homes final rule published on March 18, 2011 (76 FR 15125), sections 4204(b) and 4214(d) of the Omnibus Budget Reconciliation Act of 1987 (OBRA '87), Public Law 100-203, enacted on December 21, 1987, provides waivers of OMB review of information collection requirements for the purpose of implementing the nursing home reform amendments. The provisions of OBRA '87 that exempt agency actions to collect information from states or facilities relevant to survey and enforcement activities from the Paperwork Reduction Act are not time-limited.

B. Submission of PRA-Related Comments

If you comment on any of these information collection requirements, please submit your comments electronically as specified in the ADDRESSES section of this proposed rule.

Comments must be received on/by June 30, 2014.

VIII. Response to Comments

Because of the large number of public comments we normally receive on Federal Register documents, we are not able to acknowledge or respond to them individually. We will consider all comments we receive by the date and time specified in the DATES section of this preamble, and when we proceed with a subsequent document, we will respond to the comments in the preamble to that document.

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has been designated an economically significant rule, under section 3(f)(1) of Executive Order 12866. Accordingly, we have prepared a regulatory impact analysis (RIA) as further discussed below. Also, the rule has been reviewed by OMB.

2. Statement of Need

This proposed rule would update the SNF prospective payment rates for FY 2015 as required under section 1888(e)(4)(E) of the Act. It also responds to section 1888(e)(4)(H) of the Act, which requires the Secretary to “provide for publication in the Federal Register” before the August 1 that precedes the start of each fiscal year, the unadjusted federal per diem rates, the case-mix classification system, and the factors to be applied in making the area wage adjustment. As these statutory provisions prescribe a detailed methodology for calculating and disseminating payment rates under the SNF PPS, we do not have the discretion to adopt an alternative approach. In addition, this proposed rule would clarify statutory requirements and intent as specified in section 6111 of the Affordable Care Act regarding the approval and use of civil money penalties imposed by CMS.

3. Overall Impacts

This proposed rule sets forth proposed updates of the SNF PPS rates contained in the SNF PPS final rule for FY 2014 (78 FR 47936). Based on the above, we estimate that the aggregate impact would be an increase of $750 million in payments to SNFs, resulting from the SNF market basket update to the payment rates, as adjusted by the MFP adjustment. The impact analysis of this proposed rule represents the projected effects of the changes in the SNF PPS from FY 2014 to FY 2015. Although the best data available are utilized, there is no attempt to predict behavioral responses to these changes, or to make adjustments for future changes in such variables as days or case-mix.

Certain events may occur to limit the scope or accuracy of our impact analysis, as this analysis is future-oriented and, thus, very susceptible to forecasting errors due to certain events that may occur within the assessed impact time period. Some examples of possible events may include newly-legislated general Medicare program funding changes by the Congress, or changes specifically related to SNFs. In addition, changes to the Medicare program may continue to be made as a result of previously-enacted legislation, or new statutory provisions. Although these changes may not be specific to the SNF PPS, the nature of the Medicare program is such that the changes may interact and, thus, the complexity of the interaction of these changes could make it difficult to predict accurately the full scope of the impact upon SNFs.

In accordance with sections 1888(e)(4)(E) and 1888(e)(5) of the Act, we update the FY 2014 payment rates by a factor equal to the market basket index percentage change adjusted by the FY 2013 forecast error adjustment (if applicable) and the MFP adjustment to determine the payment rates for FY 2015. As discussed previously, for FY 2012 and each subsequent FY, as required by section 1888(e)(5)(B) of the Act as amended by section 3401(b) of the Affordable Care Act, the market basket percentage is reduced by the MFP adjustment. The special AIDS add-on established by section 511 of the MMA remains in effect until “. . . such date as the Secretary certifies that there is an appropriate adjustment in the case mix . . . .” We have not provided a separate impact analysis for the MMA provision. Our latest estimates indicate that there are fewer than 4,355 beneficiaries who qualify for the add-on payment for residents with AIDS. The impact to Medicare is included in the “total” column of Table 13. In updating the SNF PPS rates for FY 2015, we made a number of standard annual revisions and clarifications mentioned elsewhere in this proposed rule (for example, the update to the wage and market basket indexes used for adjusting the federal rates).

The annual update set forth in this proposed rule applies to SNF PPS payments in FY 2015. Accordingly, the analysis that follows only describes the impact of this single year. In accordance with the requirements of the Act, we will publish a notice or rule for each subsequent FY that will provide for an update to the SNF PPS payment rates and include an associated impact analysis.

As discussed in Section V.D. of this proposed rule, we would also clarify statutory requirements and intent as specified in section 6111 of the Affordable Care Act regarding the approval and use of civil money penalties imposed by CMS. There would be no impact to States unless they failed to follow the new regulations regarding the approval and use of civil money penalty funds. In FY 2011, the approximate total amount of civil money penalties returned to the states was $28 million. In FY 2012, the approximate total amount of civil money penalties returned to the states was $32 million. In FY 2013, the approximate total amount of civil money penalties returned to the states was $35 million. The estimated amount that we expect to be returned to the states in FY2015, based on data from previous years, is approximately $33 million. These payments to the states would only be withheld in the event that states did not spend civil money penalty funds in accordance with the statute and this regulation, or failed to make use of funds to benefit the quality of care or life of residents, or failed to maintain an acceptable plan for the use of these funds. Even if CMP funds are withheld from a state, we expect that the state would eventually come into compliance and that the state would later gain access to the withheld funds.

4. Detailed Economic Analysis

The FY 2015 impacts appear in Table 13. Using the most recently available data, in this case FY 2013, we apply the current FY 2014 wage index and labor-related share value to the number of payment days to simulate FY 2014 payments. Then, using the same FY 2013 data, we apply the FY 2015 wage index, as proposed in Section V.A above, and labor-related share value to simulate FY 2015 payments. We tabulate the resulting payments according to the classifications in Table 13 (for example, facility type, geographic region, facility ownership), and compare the difference between current and proposed payments to determine the overall impact. The breakdown of the various categories of data in the table follows.

The first column shows the breakdown of all SNFs by urban or rural status, hospital-based or freestanding status, census region, and ownership.

The first row of figures describes the estimated effects of the various changes on all facilities. The next six rows show the effects on facilities split by hospital-based, freestanding, urban, and rural categories. The urban and rural designations are based on the location of the facility under the new OMB delineations that we are proposing to implement beginning in FY 2015. Facilities should use these proposed OMB delineations to identify their urban or rural status for purposes of identifying what areas of the impact table would apply to them beginning on October 1, 2014. The next nineteen rows show the effects on facilities by urban versus rural status by census region. The last three rows show the effects on facilities by ownership (that is, government, profit, and non-profit status).

The second column shows the number of facilities in the impact database.

The third column shows the effect of the annual update to the wage index. This represents the effect of using the most recent wage data available, without taking into account the proposed revised OMB delineations. That is, the impact represented in this column is solely that of updating from the FY 2014 wage index to the FY 2015 wage index without any changes to the OMB delineations. The total impact of this change is zero percent; however, there are distributional effects of the change.

The fourth column shows the effect of adopting the updated OMB delineations (as set forth in OMB Bulletin No. 13-01) for wage index purposes for FY 2015, independent of the effect of using the most recent wage data available, captured in Column 3. That is, the impact represented in this column is that of the proposed use of the revised OMB delineations, utilizing the proposed blended wage index. The total impact of this change is zero percent; however, there are distributional effects of the change.

The fifth column shows the effect of all of the changes on the FY 2015 payments. The update